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

l L A N D & L E A S I N G

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Vol. 20, No. 29 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of July 19, 2015 • $2.50

page12

Tangen: Alaskans must demandrights to develop resources

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of July 19, 2015 l E X P L O R A T I O NNORTHERN NEIGHBORS

Compiled by Shane Lasley

Rickford details Canada support of miningCanada Minister of Natural Resources Greg Rickford July14 reiterated the federal government’s support of Canada’smining sector. Rickford, who is also the minister for the

Federal Economic Development Initiative for NorthernOntario, delivered this message during a keynote speech atthe Greenstone Mineral Exploration Forum in Ontario.According to the natural resources minister, the mining, min-erals and metals sector accounted for nearly C$63 billion ofCanada’s gross domestic product and one-fifth of the coun-try’s merchandise exports during 2014. With Canada attract-ing roughly 14 percent of global mineralexploration budgets and more than 200active mines across the country, the min-ing sector employed nearly 380,000Canadians, including about 10,000Aboriginal peoples. In outliningCanada’s ongoing support for the miningsector, Rickford highlighted the follow-ing measures from Economic ActionPlan 2015: the federal MineralExploration Tax Credit was extended foranother year to provide junior miningcompanies with improved access to exploration financing; thedefinition of Canadian Exploration Expenses was expandedto include costs associated with environmental studies andcommunity consultations; $23 million allocated to stimulatethe technological innovation needed to develop rare earth ele-ments and chromite over five years; and the Targeted

Geoscience Initiative, a geoscience program that providesindustry with the next generation of geoscience knowledgeand innovative techniques to better detect buried mineraldeposits, was renewed for C$22 million over five years. “Ourgovernment’s enhanced support for the mining industrythrough Canada’s Economic Action Plan will help ensure athriving, dynamic mining sector that will provide jobs andgrowth for Canadians,” said Rickford. The minister also high-lighted the importance of collaboration and consultation inthe responsible development of Canada’s natural resources.

Rockhaven consolidates Klaza land positionRockhaven Resources Ltd. July 14 reported the addition of868 mineral claims to its Klaza gold-silver property in south-ern Yukon Territory. This major expansion is the result offour separate agreements, including a property exchangedwith Strategic Metals Ltd., Rockhaven’s largest shareholder.In exchange for five Strategic properties adjacent to or nearKlaza (BBB, Sked-Desk, Dade, Queen and Nor), Rockhavenhas agreed to transfer five of its distal Yukon properties

(Plata, Mount Hinton-Gram, Groundhog-Grayling-Cyr, Zapand Kluane-Ellias). In addition to the properties, Strategicwill pay Rockhaven C$250,000 in cash. The exchange ofproperty packages provides both companies with longer termbenefits that did not exist prior to the exchange. Considered arelated-party transaction, the exchange will require minorityapproval from shareholders of both Rockhaven and Strategicat their annual general and special meetings to be held laterthis summer. In addition to the claims acquired fromStrategic, Rockhaven acquired three claim groups from third-party vendors. Rockhaven has signed a property purchaseagreement to acquire 116 mineral claims immediately adjoin-ing the southern boundary of the Klaza property. With theC$250,000 from Strategic, Rockhaven is able to acquire fullownership of the Rusk property, a group 116 claims adjacentto the south of Klaza, and acquire the Krast property, 32

claims immediately east of Klaza. Additionally, Rockhavenhas fully exercised an option to acquire the Val claimsthrough the issuance of 118,047 Rockhaven shares to the

see NORTHERN NEIGHBORS page 13

Drills turn on APFirst Quantum funds drilling aimed at porphyry targets on Alaska Peninsula

By SHANE LASLEYMining News

First Quantum Minerals Ltd. has agreed to investUS$2 million on a drill program aimed at further

investigating the potential of Millrock ResourcesInc.’s highly-prospective copper-gold project inwestern Alaska. The roughly 500,000-acre propertyextends about 75 miles from Stepovak Bay near thesouthwestern end of the Alaska Peninsula to a fewmiles north of Chignik Bay, one of the primary portsin the area.

Millrock optioned the property in 2012 fromBristol Bay Native Corp., the Alaska Native regionalcorporation that owns the subsurface mineral rights.Surface rights are held by Alaska Native village cor-porations.

Millrock President and CEO Greg Beischer toldMining News that he feels fortunate that BBNC atlarge and particularly the shareholders that live in thenearby villages have granted his company permis-sion to explore this highly prospective region of theirlands.

Since cutting a deal with the corporation,Millrock has advanced exploration in measuredstrides that includes a US$600,000 reconnaissanceprogram funded by First Quantum in 2014. Inexchange for funding the exploration of some mostintriguing targets on the property, Millrock grantedFirst Quantum an exclusive right to enter an option toearn up to an 80 percent joint venture interest in theproperty if it liked what it saw on the first-pass explo-ration.

Aleutian ArcThe Alaska Peninsula project covers a stretch of

the Aleutian Arc, a Pacific Ring of Fire island arcbeing formed as the Pacific Ocean plate dives underthe North American plate. This ongoing tectonicactivity is witnessed in the geologically young min-eralization – 3 million to 21 million years – being tar-geted by Millrock and First Quantum’s exploration.

The geologically active region has received limit-ed modern exploration and is prospective for epither-mal gold as well as intrusive-related deposits such asskarns and porphyry copper-gold mineralizing sys-tems.

While systematic mineral exploration of thisregion is limited, at least 34 known mineral occur-rences have been identified on the Alaska Peninsulaproperty.

To narrow the search, the partners started off the2014 season with 1,140 line-kilometers of high-reso-lution airborne magnetic and resistivity surveysflown over three of the highest quality porphyry cop-per-gold occurrences – Kawisgag, MDB and DryCreek.

Millrock and First Quantum geologists followedup the geophysical work with a mapping and sam-pling program.

Millrock reported, “The results were very encour-aging. Classic alteration patterns for porphyry copperdeposits were defined at each prospect from rocksample analysis. Zoned metal anomalies from soilsampling match well with the alteration patterns.Drill testing is warranted at each of the threeprospects.”

Results from this initial work, intrigued FirstQuantum enough to take up the option and fund a2,400-meter drill program aimed at investigatingwhat lies below the surface at two the most promis-ing prospects – Dry Creek, formerly known as BeeCreek, and MDB, short for Mallard Duck Bay.

Classic porphyry signatureLocated near the northern end of the Alaska

Peninsula land package optioned by Millrock, DryCreek is the only prospect that has been previouslydrilled.

Dated at roughly 3.6 million years, the porphyrymineralization found at this prospect is hosted inhornfelsed sediments intruded by multi-phase dioriteintrusive rocks containing mineralized veins and dis-seminated chalcopyrite, molybdenite and pyrite.

The prospect was initially explored by Bear CreekMining, which drilled five holes in 1976. One holecut 160 meters averaging 0.25 percent copper, 0.011percent molybdenum, including 20 meters of 0.35percent copper and 0.018 percent molybdenum,according to a Bear Creek Mining report.

Similar results were encountered in two holessuccessfully completed by Metallica Resources Inc.and Full Metal Minerals Ltd. in 2006, including oneintercept of 118 meters averaging 0.32 percent cop-per and 0.21 g/t gold.

Soil sampling completed by Full Metal andMetallica outlined a 0.5 percent copper anomaly cov-ering roughly 250 acres and a more localized 0.05percent molybdenum anomaly and discontinuous 0.5parts-per-million gold anomaly.

This historical work along with sampling com-pleted last year outlines a core zone rich in copper,gold and molybdenum surrounded by a halo ofanomalous zinc, lead and manganese. All told, thezoned mineralization covers roughly 3,000 acres.

“We found this beautifully zoned alteration sys-tem, and we found this beautifully zoned metallicanomaly in soil,” Beischer said. “It is just an absoluteclassic porphyry signature.”

Results of an airborne magnetic survey flownover the area suggest that mineralization identifiedon the surface at Dry Creek may continue below aridge to the southwest.

A promising induced polarization chargeabilityanomaly that has eluded past explorers will be the

GREG RICKFORD

see DRILL PROGRAM page 12

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The zoned alteration system and soil anomaly at DryCreek offers Millrock Resources Inc. and FirstQuantum Minerals Ltd. a “classic porphyry signature”to target with drilling currently underway at theAlaska Peninsula project in Southwest Alaska.

This week’s Mining News

Drilling program aims to further investigate the potential ofMillrock Resources’ copper-gold project in western Alaska. Page 11.

page5

Guttenberg: Pipeline prospectsbest ever; dubious of Shell’s plans

Needs more drillingConocoPhillips tells AOGCC about plans for improving Meltwater production

By ALAN BAILEYPetroleum News

I t will be possible to improve oil production

rates from the Meltwater oil field on the North

Slope by using coiled tubing drilling to sidetrack

some existing wells and by doing some well con-

versions, officials from ConocoPhillips, the field

operator, told the Alaska Oil and Gas Conservation

Commission during a July 9 hearing. The company

has asked the commission to modify the existing

area injection order for the field to allow the

drilling operations. The company has also request-

ed some other changes to the injection order,

including an approval for some limited uses for

injected water and a change to reporting require-

ments.

The change request stems from a problem iden-

tified early in the Meltwater field’s life, when

ConocoPhillips experienced difficulties with a

leak from the reservoir of fluids injected for

enhanced oil recovery. Consequently, in 2012 the

company placed an upper limit on the reservoir

Staking out LNG positionsBC government, opposition, launch formal debate on LNG agreements legislation

By GARY PARKFor Petroleum News

British Columbia Premier Christy

Clark wants to make real history in

the provincial legislature this month by

adopting a Liquefied Natural Gas Project

Agreements Act that gives her govern-

ment the legal authority to approve the

C$36 billion Pacific NorthWest LNG

project led by Malaysia’s Petronas and

enter into similar terms with other would-be LNG

developers over the next 10 years.

“We don’t have many opportunities in this leg-

islature to make history,” she said July 13. “This is

one of them. It really will be a historic

debate, one that people will look back on

for decades.”

What she didn’t do was repeat the

extravagant claims that were credited

with re-electing the Liberals in 2013.

Clark said then that at least one LNG

project would be up and running by

2015, that five would be in operation

before 2020 (there are currently 18 in

various stages) and that the industry

would create 100,000 jobs, contribute enough roy-

alties and taxes to create a C$100 billion

KRU expansion soughtAdditions would allow Conoco to incorporate recent discoveries in existing PAs

By ERIC LIDJIFor Petroleum News

ConocoPhillips Alaska Inc. wants to expand

the Kuparuk River unit and two participating

areas within the unit to better incorporate several

recent discoveries and developments.

The largest oil company in the state is seeking

permission to add a lease along the southern

boundary of the North Slope unit and to include 18

additional leases already within the unit to either

the Kuparuk participating area or the West Sak par-

ticipating area (see map, page 22).

The former expansion would include lease ADL

392364 into the unit boundaries, expanding the

total unit size by 2,560 acres. The latter expansion

would add portions of 11 tracts (including ADL

392364) covering some 11,900 acres to the

Kuparuk participating area and eight tracts cover-

ing some 6,100 acres to West Sak participating

area. All the relevant tracts and leases are currently

held by production from the unit.

The expansion would allow ConocoPhillips to

Shell sends Fennica for repairs,most of fleet staged in Dutch

Most of Shell’s vessels remain staged in Dutch Harbor in

preparation for the company’s Chukchi Sea exploration,

including the two drill rigs, Shell spokeswoman Megan

Baldino told Petroleum News in a July 15 email.

The icebreaker Fennica, which sustained damage while

traveling through charted Alaska waters with a qualified har-

bor pilot onboard on July 3, is in transit to Portland, Oregon,

for repairs, Baldino said.

She said Shell believes interim repairs could have been

made in Dutch Harbor, but chose “to pursue a conservative

course and send it to a shipyard where a permanent fix can be

performed.” No impact is anticipated on the company’s

Miller says not bankrupt, justmaking SEC required notification

Miller Energy Resources said July 15 that it does not intend

to file for bankruptcy and believes its assets have value

exceeding its debts.

In a July 14 press release the company said it expects to file

its 10-K for full fiscal year July 29, taking advantage of the

15-day extension afforded by the Securities and Exchange

Commission. In a July 14 SEC filing Miller said it requires

additional time to complete its financial statements based on

“the substantial drop in oil prices, drilling results during the

year” and its “on-going capital repositioning process.”

“In addition to those issues,” Miller said in its SEC filing,

“the registrant believes that, due to the constraining structure

of the registrant’s current debt, its continued capital reposi-

see SHELL FLEET page 18

see MILLER FINANCIALS page 18

see MELTWATER DRILLING page 23

see LNG POSITIONS page 24

see KRU EXPANSION page 22

Essentially, the program would placeinjectors and corresponding producers inthe same sand bodies within the reservoir,

rather than straddling sand bodyboundaries, thus enabling higher

production rates without raising theinjection pressure to levels where fluid

leakage would restart.

CHRISTY CLARK

The expansion would allowConocoPhillips to more easily utilizeexisting facilities to develop reservesdiscovered in the expansion regions,

according to the company.

2 PETROLEUM NEWS • WEEK OF JULY 19, 2015

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

9 B.C. First Nations banding together

Establish environmental authority to assess impactof range of industrial projects, led by LNG; industry alliance shares concerns

ENVIRONMENT & SAFETY

EXPLORATION & PRODUCTION

FINANCE & ECONOMY

FACILITIES6 Hilcorp permitting Milne G&I facility

DEC to issue solid waste treatment permit for grind and inject at MPU B pad; facility was originally built for Northstar unit by BP

GOVERNMENT5 Guttenberg: Pipeline prospects best ever

Fairbanks Democrat believes state’s chance of advancinggas pipeline project strong, remains dubious of Shell’s Arctic drilling plans

4 AIDEA updates RCA on Interior energy

HB 105 signed; authority keeping Fairbanks Natural Gasmanagement; asset management group given role

8 SAE gets IHA for Beaufort 3-D seismic survey

7 ‘R’ word haunts oil patch

PIPELINES & DOWNSTREAM

NATURAL GAS

15 Keystone two-step

10 To market, to market ...

15 If you could tour the pipeline route

8 Shell open to reviving mothballed projects

8 Hilcorp OK’d for Liberty hazard survey

Shell sends Fennica for repairs,most of fleet staged in Dutch

Miller says not bankrupt, justmaking SEC required notification

Needs more drilling

ConocoPhillips tells AOGCC about plans for improving Meltwater production

Staking out LNG positions

BC government, opposition, launch formal debate on LNG agreements legislation

KRU expansion sought

Additions would allow Conoco to incorporaterecent discoveries in existing PAs

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PETROLEUM NEWS • WEEK OF JULY 19, 2015 3

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

Alaska Rig StatusNorth Slope - Onshore

Doyon DrillingDreco 1250 UE 14 (SCR/TD) Prudhoe Bay PBU 07-34B BPDreco 1000 UE 16 (SCR/TD) Prudhoe Bay PBU X-17 BPDreco D2000 Uebd 19 (SCR/TD) Nanuq CD5-313 ConocoPhillipsAC Mobile 25 Kuparuk 1D-146 ConocoPhillipsOIME 2000 141 (SCR/TD) Kuparuk 2S-02 ConocoPhillipsTSM 7000 Arctic Fox #1 Stacked

Kuukpik 5 Prudhoe Bay Available Nabors Alaska DrillingAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Nabors yards completing demobilization procedures Mid-Continental U36A 3-S Prudhoe Bay AvailableOilwell 700 E 4-ES (SCR) Prudhoe Bay AvailableDreco 1000 UE 7-ES (SCR/TD) Kuparuk ConocoPhillipsDreco 1000 UE 9-ES (SCR/TD) Kuparuk ConocoPhillipsOilwell 2000 Hercules 14-E (SCR) Prudhoe Bay AvailableOilwell 2000 Hercules 16-E (SCR/TD) Mustang location, Brooks Range Petroleum Under contract to Brooks Range PetroleumEmsco Electro-hoist-2 18-E (SCR) Prudhoe Bay StackedEmsco Electro-hoist Varco 22-E (SCR/TD) Prudhoe Bay StackedTDS3Emsco Electro-hoist Canrig 27-E (SCR-TD) Deadhorse, under contract 1050E to ExxonMobil for 2015

Emsco Electro-hoist 28-E (SCR) Prudhoe Bay StackedOilwell 2000 33-E Prudhoe Bay Available Academy AC Electric CANRIG 99AC (AC-TD) Nabors yards completing demobilization proceduresOIME 2000 245-E (SCR-ACTD) Oliktok Point ENIAcademy AC electric CANRIG 105AC (AC-TD) Nabors yards completing demobilization proceduresAcademy AC electric Heli-Rig 106-E (AC-TD) Deadhorse Nabors yard Available

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay, Price Pad rig maintenance BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site F-12 BPIdeco 900 3 (SCR/TD) Milne Point MP-J Pad Well 12 Hilcorp

Parker Drilling Arctic Operating Inc. NOV ADS-10SD 272 Prudhoe Bay DS 18 BPNOV ADS-10SD 273 Prudhoe Bay DSW-59 BP

North Slope - Offshore

BPTop Drive, supersized Liberty rig Inactive BP

Doyon DrillingSky top Brewster NE-12 15 (SCR/TD) Spy Island SP01-SE7 L1 ENI

Nabors Alaska DrillingOIME 1000 19AC (AC-TD) Oooguruk ODSN-02 Caelus Alaska

Cook Inlet Basin – Onshore

Miller Energy ResourcesMesa 1000 Rig 37 Mobilized to North Fork to begin Miller Energy Resources drilling this winter

All American Oilfield LLCIDECO H-37 AAO 111 In All American Oilfield’s yard in Kenai, Alaska Available

Aurora Well ServicesFranks 300 Srs. Explorer III AWS 1 Sterling, Stacked out at D&D yard Available

Nabors Alaska DrillingContinental Emsco E3000 273E Kenai AvailableFranks 26 Kenai StackedIDECO 2100 E 429E (SCR) Kenai Stacked

SaxonTSM-850 147 Ninilchik Unit, Bartolowits pad Hilcorp Alaska drilling Frances #1TSM-850 169 Swanson River Hilcorp Alaska

Cook Inlet Basin – Offshore

XTO EnergyNational 110 C (TD) Idle XTO Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151 Furie Upper Cook Inlet KLU#1Cook Inlet EnergyNational 1320 35 Osprey Platform RU-1, workover Cook Inlet Energy Patterson UTI Drilling Co LLC 191 West McArthur River Unit #8 Cook Inlet Energy

Mackenzie Rig Status

Canadian Beaufort Sea

SDC Drilling Inc.SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Available

Central Mackenzie Valley

AkitaTSM-7000 37 Racked in Norman Well, NT Available

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of July 16, 2015.

Active drilling companies only listed.

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

This rig report was prepared by Marti Reeve

Baker Hughes North America rotary rig counts* July 10 July 2 Year AgoUS 863 862 1,875Canada 169 139 315Gulf 31 29 55

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

The Alaska - Mackenzie Rig Report is sponsored by:

JUDY

PAT

RICK

4 PETROLEUM NEWS • WEEK OF JULY 19, 2015

Kay Cashman PUBLISHER & EXECUTIVE EDITOR

Mary Mack CEO & GENERAL MANAGER

Kristen Nelson EDITOR-IN-CHIEF

Susan Crane ADVERTISING DIRECTOR

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Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Alan Bailey SENIOR STAFF WRITER

Eric Lidji CONTRIBUTING WRITER

Wesley Loy CONTRIBUTING WRITER

Gary Park CONTRIBUTING WRITER (CANADA)

Steve Quinn CONTRIBUTING WRITER

Rose Ragsdale CONTRIBUTING WRITER

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Mapmakers Alaska CARTOGRAPHY

Forrest Crane CONTRACT PHOTOGRAPHER

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Ashley Lindly RESEARCH ASSOCIATE

ADDRESSP.O. Box 231647Anchorage, AK 99523-1647

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OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 20, No. 29 • Week of July 19, 2015

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l N A T U R A L G A S

AIDEA updates RCAon Interior energyHB 105 signed; authority keeping existing Fairbanks Natural Gasmanagement; internal asset management group given role

By KRISTEN NELSONPetroleum News

T he Alaska Industrial Developmentand Export Authority will keep

Fairbanks Natural Gas management inplace as it works toward expanding natu-ral gas service in Fairbanks-North Polearea. In a July 10 submission of supple-mental information regarding its applica-tion to acquire a controlling interest inFairbanks Natural Gas, AIDEA told theRegulatory Commission of Alaska that itwill keep Dan Britton and other FNGexisting management in place after itsacquisition of Pentex Alaska Natural GasCo., although the authority said it willeliminate a vacant regulatory affairs posi-tion, since FNG will be unregulated afterthe acquisition.

AIDEA said it intends to incorporateits Project Development and AssetManagement Program group into themanagement of Pentex to take advantageof that group’s experience managingother projects, which it routinely managesfor AIDEA, including the DelongMountain Transportation System at RedDog and the Skagway Ore Terminal. Theauthority said the group does not provideday-to-day management, “but rather aform of asset supervision in whichAIDEA keeps track of its investments andworks on any issues that may arise.”

Contact with boardAIDEA said its executive director,

John Springsteen, will continue to be thelead interface between FNG’s Britton andthe AIDEA board and said it would alsohave the support of Alaska EnergyAuthority engineers, including KirkWarren, who have extensive liquefiednatural gas experience.

“Since AIDEA intends to work towardconsolidating the Fairbanks gas utilitiesinto a Local Control Entity, its manage-ment role will be transitional, likely last-ing only for the next two years,” theauthority said.

Bill signedHouse Bill 105, signed by Gov. Bill

Walker June 30, allows AIDEA to pursueoptions other than trucking LNG from theNorth Slope to provide low-cost energy toInterior residents.

HB 105 removed the North Sloperestriction on the source of natural gas forthe Interior Energy Project, although leg-islative intent language at the beginning

of the bill notes that the removal of theNorth Slope restriction allows for geo-graphic flexibility and is not meant toallow expansion of the project beyond thescope of the Interior Energy Project. Theintent language also requires that AIDEAuse “an open and competitive process” todevelop LNG production capacity andaffiliated infrastructure.

The bill amends AIDEA’s fundingauthority for the project, up to $275 mil-lion in financing for an LNG plant andnatural gas distribution system to serveInterior Alaska, by removing the require-ment that the LNG facility be on theNorth Slope, requiring only that the LNGplant be “in the state.”

Pentex purchaseAIDEA applied to RCA in June to

acquire 100 percent interest in FNG,which holds a certificate of public con-venience and necessity and is authorizedto provide natural gas distribution servicein portions of Fairbanks.

RCA said that after the acquisition,AIDEA intends to accelerate the build outof natural gas distribution lines to newcustomers, increase operating efficienciesand coordination, and reduce rates. RCAsaid AIDEA also has plans to work withthe Fairbanks North Star Borough, theCity of Fairbanks and the City of NorthPole to transfer FNG to a coordinatedLocal Control Entity.

While FNG is subject to economicregulation by RCA, the commission saidthat because AIDEA is a political subdivi-sion of the state it is exempt from eco-nomic regulation.

RCA received letters of support for theacquisition from the Matanuska-SusitnaBorough, the City of Fairbanks and theFairbanks North Star Borough.

Matanuska-Susitna Borough MayorJohn Moosey said AIDEA’s efforts tiedirectly to the work the borough is doingat Port MacKenzie with the goal of stim-ulating the economy, reducing energycosts and providing infrastructure toenable resource development, and said

While FNG is subject to economicregulation by RCA, the

commission said that becauseAIDEA is a political subdivision of

the state it is exempt fromeconomic regulation.

see INTERIOR ENERGY page 6

By STEVE QUINNFor Petroleum News

House Rep. David Guttenberg lovesto tell stories about working on the

trans-Alaska pipeline system, but he’shoping even better stories emerge as thestate tries to advance a large-diameter nat-ural gas pipeline project that ends at anLNG export terminal.

The Fairbanks Democrat who serveson the House Finance Committee sayshe’s more optimistic than ever since hetook office in 2003. Guttenberg shared histhoughts on the project and other resourceissues with Petroleum News.

Petroleum News: Let’s start close tohome with the recently passed IEP bill.What do you think that means for folks inthe Interior?

Guttenberg: This is part of a largerissue as well. We’ve got a 48-inchpipeline running through our town. To seethat resource flowing right by has alwaysbeen very frustrating. Flint Hills was here,but the economy of scale was not there forthem to build up. So it’s about time thestate addressed economic disparity acrossthe state with the costs of energy. That isthe number one driver of any community:the cost of energy. So recognizing that, it’sa great step forward.

Petroleum News: So what is next nowthat you’ve got the bill in place? Whatwould you like to see done?

Guttenberg: Part of it is building outthe infrastructure, which they are doingnow, then finding the long-term gas sup-ply. You get into this scenario that’salways been problematic for Alaskans:when somebody puts a plan in place and itlooks good, and you’re almost ready tobuy into it, somebody else down the roadsays I’ve got this plan or somebody elsesays I’ve got propane. What aboutpropane? You’re always striving for theperfect deal and it leaves you in a state ofnever actually accomplishing anything.And that’s frustrating.

Petroleum News: With that in mind,

what would you liketo see happen?

Guttenberg: Themost important thingis the infrastructurekeeps getting builtout and they sign adeal for a long-termsource of gas.

Petroleum News:So you’ve noted thatdifferent people keep coming back andsaying, I’ve got this solution and I’ve gotthat solution. Why do you feel this is agood first step?

Guttenberg: This governor gotinvolved with this project more so thanother governors in the past. So it facili-tates something happening. It has morepeople actively involved in pursuing theanswer. This project is in place becausethe private sector has not wanted to do it.At the end of the day, the private sectorwould love to bring gas to Fairbanks for anickel less than the price we are payingfor oil. Well, that doesn’t work.

Every household has to invest into theconversion process to go from oil to gas,and that’s expensive. The private sectorhas illustrated — and I’ll just use the last18 to 19 years since Fairbanks natural gashas been here — that that is not a gamethey are going to play. So the administra-tion is taking a more active role in howare going to get it done.

People always say let the marketswork, let the private sector take over.Well, that hasn’t happened. It’s failed. It’san example where a project like this coor-

dinating the process and the gas, and put-ting money into the infrastructure is theonly way it’s going to work. So thisadministration taking an active role is howit’s going to work.

Petroleum News: So would you like atimeline established to get this done?

Guttenberg: They are building out inphases for the dirtiest air (problem) sothey can accomplish things for the EPA’sgoal. People don’t recognize that this ismore than just getting affordable energyfor Alaskans. It’s alsomeeting clean air standardswhich are very problemat-ic. It’s not just the EPApeople have a problemwith. The air here is verybad in the winter and we have to handlethat. There could be repercussions if wedecide to do just nothing.

Gas is supposed to start getting deliv-ered next fall. The infrastructure for thefirst phase for the build out and at thatpoint, it would be a waste if the gas isn’tthere to go into those homes. It would bea waste of a year. It would add costs to theproject. The project has to start paying foritself and you do that with the ratepayers.If you don’t have any ratepayers, youdon’t have any opportunity to do that.

Petroleum News: Still on natural gas,you’ve got the prospects of advancing alarge-diameter pipeline project. With thatin mind, you’ve seen gas ideas and proj-ects come and go since 2003, what areyour thoughts on the current discussion?

Guttenberg: My concern is that there

are factors beyond the state’s control thatmake economic decisions and keep thegas in the ground. That’s been an issuethat I’ve had all these times, whether it’sgas or oil, or how we do our taxes. I thinkthat’s why the governor was electedbecause he’s taking a more active rolewith the state being a partner in this.

If the project doesn’t pan out with theproducers, then we are ready and poisedto build an alternative. If the large-diame-ter line with the producers doesn’t panout, and those guys can’t come up with

something, then the statewill build something. As thestate builds its model andgets that stuff in place,because the large diameterline is failing, then some

people will buy into the smaller diameter.It will get bigger and bigger, and prettysoon it will have most of the playersinvolved anyway.

I think they are all just jockeying forposition for the best thing they can do andbecause the governor has an alternativeplan anyway, it creates a situation whereyou’re just going to have to do it.

So I have more hope than ever beforethat something will come of this. I meanI’m an old pipeline guy. I worked onTAPS when we were building the roadand cutting the right of way. When thepipeline was done, I stuck around andworked in Prudhoe for 20 years. I waswaiting all of those years like everyoneelse was so I have more hope than everbefore that something will get done.

l G O V E R N M E N T

Guttenberg: Pipeline prospects best everFairbanks Democrat believes state’s chance of advancing gas pipeline project strong, remains dubious of Shell’s Arctic drilling plans

PETROLEUM NEWS • WEEK OF JULY 19, 2015 5

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By KRISTEN NELSONPetroleum News

T he Alaska Department ofEnvironmental Conservation said

July 10 that it plans to issue a solid wastetreatment facility permit to HilcorpAlaska for treatment of ResourceConservation and Recovery Act exemptexploration and production drilling wasteand RCRA non-hazardous waste, prior toinjection of that waste into a Class I UICwell.

The facility is at the Milne Point Unit,B pad, some 25 miles northwest ofPrudhoe Bay.

BP Exploration (Alaska), 50 percentworking interest owner at Milne Pointand the previous operator, was permittingthe grind and inject facility prior to thesale of 50 percent working interest in thefield to Hilcorp.

Increased drillingHilcorp told DEC that the solid waste

permit for the Milne Point grind andinject facility was to support increaseddrilling within the Milne Point unit. Thecompany said it was proposing to reacti-vate the Northstar grind and injectdrilling waste processing facility previ-ously operated by BP.

Hilcorp said the grind and inject facil-ity was constructed by BP between 1998and 2000 and used at Northstar. The facil-ity was demobilized and transported offNorthstar Island in 2010.

At Milne Point the grind and injectfacility will process some 40,000 cubicyards of exploration and productionexempt and RCRA non-exempt, non-haz-ardous waste per year, the company said.Waste will be transported to the grind andinject facility using vacuum trucks, dumptrucks or a vehicle with containers ofwaste, and the waste will be offloadedwithin an enclosed truck bay into a steeltank. Waste will then be pumped from thesteel tank into the grind and inject facility,where it will be mechanically ground andinjected.

Hilcorp said it “proposes to minimizethe amount of drilling waste requiringdisposal by segregating and treating por-tions of the material for beneficial reuse.”

The company said additional permitsfor the project include an EnvironmentalProtection Agency underground injectioncontrol class I injection well permit, an

Alaska Department of Natural Resourcesplan of operations and a North SlopeBorough administrative approval.

Beneficial reuseIn its application for a solid waste per-

mit Hilcorp said the majority of the wastehandled at the grind and inject facilitywould be processed onsite and disposedby underground injection, but to mini-mize the amount of drilling waste requir-ing injection, “select material will be seg-regated out and evaluated for potentialbeneficial reuse,” including road and padconstruction, berm construction, backfillfor excavations, constructions of concretebarriers and other construction projects.

That process includes separation ofgravel and coarse cuttings from the mainwaste stream and treating them with pres-sure washing. After washing, materialintended for reuse will be stored untilanalytical results are received and evalu-ated. Hilcorp said it would “sample thepost-treatment cuttings on a per wellbasis,” and cuttings which meet perform-ance standards will be reused.

Hilcorp’s DNR plan of operationsamendment for the grind and inject facil-ity notes that new piping required for theproject will be on-pad and supported onexisting vertical support members andnew pad supports between wellhead andpipe racks. l

l F A C I L I T I E S

Hilcorp permitting Milne G&I facilityDEC to issue solid waste treatment permit for grind and inject at MPU B pad; facility was originally built for Northstar unit by BP

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approval of HB 105 is compatiblewith the borough’s efforts “to assist ingetting low cost Cook Inlet LNG tothe market.” Moosey said the boroughis working with both WesPacMidstream and REI on plans to devel-op LNG plants at Port MacKenzie,and said HB 105’s provision to allowfor lost-cost energy from any area ofAlaska “opens up competition thatwill more likely result in a successfuloutcome.”

Moosey also said that the boroughwas pleased that, as part of AIDEA’spurchase of Pentex, “there will bestrong consideration” for returning theLNG plant just north of PortMacKenzie back to the private sector.“With that action, our two LNG proj-ects can compete on an equal playingfield,” he said.

Mayor John Eberhart of the City ofFairbanks and Mayor Luke Hopkinsof the Fairbanks North Star Boroughboth supported AIDEA’s purchase ofPentex. They cited the high costs ofenergy and the benefits of large-scalenatural gas to the Interior. Eberhartsaid that since the 1950s privateindustry has failed to bring large-scalenatural gas to Fairbanks and Hopkinscited a recent study by the Council forCommunity and Economic Researchwhich showed borough residents paidnearly 250 percent of national averageutility costs, while Southcentral resi-dents paid 5 percent below the nation-al average. l

continued from page 4

INTERIOR ENERGY

Hilcorp told DEC that the solidwaste permit for the Milne Pointgrind and inject facility was to

support increased drilling withinthe Milne Point unit.

By GARY PARKFor Petroleum News

What has taken the best part of ayear to solidify is now rapidly tak-

ing shape.A glut of supply on North American

natural gas markets at prices manyobservers think will last for at least anoth-er two years and a fresh swoon in the oilsector have Canada’s upstream industrybracing for a fresh battering.

For economic analysts the petroleumindustry’s inability to achieve and holdtight to a balanced market is even forcingsome to start thinking about the “R” wordas Canada enters its fifth month of belowzero-Gross Domestic Product — the firststring of declines since the 2008-09recession began to wind down.

That, along with a near-record tradedeficit in May, is spawning talk of a sec-ond drop this year in the Bank ofCanada’s key interest rate.

The first cut occurred in January whenbank Gov. Stephen Poloz said the col-lapse of global oil prices has set the tablefor an “atrocious” start to 2015.

What he apparently didn’t anticipatewas the prolonged impact and damage tothe economy that the energy drubbingwould deliver.

Waiting for the positiveBut the vague outlines that emerged

earlier this year are now clearly defined. Bank of Montreal chief economist

Douglas Porter said he originally thoughtthere would be two opposing forces in theCanadian economy — a downward pullfrom energy on the weak side and aUnited States-driven lift in manufactur-ing.

“We certainly got the negative andwe’re still waiting for the positive,” hesaid.

As the wait continues and optimismevaporates, Statistics Canada, a federalgovernment agency, said Canada’s oiland gas stronghold in Alberta is facing an11 percent decline in private and publiccapital spending to C$82 billion this year.

It said the conventional oil and gassubsector across Canada faces a declinein capital spending of C$8 billion toC$30.5 billion and the non-conventionalsubsector is expected to fall by C$5 bil-lion to C$25.1 billion.

Based on its own calculations, theCanadian Association of PetroleumProducers said total capital investment inthe industry is targeted at C$45 billion in2015, off C$28 billion from last year,with the oil sands facing a C$10 billiondrop to C$23 billion.

Spillover expectedTodd Hirsch, chief economist with

ATB Financial, expects the flounderingcommodity prices will soon start spillingover to construction, machinery andequipment investments.

Dina Ignjatovic, an economist withTD Economics, said expectations that oilprices will hover at current levels for thesecond half of 2015 and average US$70 abarrel in 2016 will fail to trigger arebound in investment, unlike the last oilprice correction in 2009.

As the oil shock lingers, theInternational Monetary Fund has peggedCanadian economic growth at 1.5 percentfor 2015, down sharply from the 2.2 per-

cent it forecast only three months ago,while projected United States growth waslowered to 2.5 percent from 3.1 percentover the same period.

The IMF listed a “strong downsizingof capital expenditure in the oil sector” asa major factor hurting North Americaneconomic activity, but did suggest the“unexpected weakness ... is likely toprove a temporary setback.”

IMF chief economist OlivierBlanchard warned that the Greek crisis“may be a warning” of the ongoing risks

to stability and economic growththroughout the world from “debt over-hang” that remains a focus at govern-ment, corporate and household levels.

Canada’s Finance Minister Joe Oliver,while clinging to his projected surplus ofC$1.4 billion for fiscal 2015-16, insistedthat virtually all of the economists heconsults with see positive growth for theCanadian economy for the calendar year,even though some suggest Canada will belucky to grow by 1 percent.

The harshest reality in Canada is that16 megaprojects in the oil sands sectorhave been cancelled or delayed, com-pared with only 10 in the rest of the world(although those numbers could be skewedby the fact that state-owned, national oilcompanies that control 75 percent of theworld’s oil production have no obligationto report their plans or budgets).

Communication far from transparentBut communication is far from com-

pletely transparent in Canada.TD Securities oilfield services analyst

Scott Treadwell told an energy confer-ence earlier in July that “in this market, itdoesn’t do producers any good to shareany high-level information with servicecompanies.”

He said producers essentially tell thesupport sector that “things aren’t goodand costs need to come down.”

They also tell service companies theyare not sure how much drilling they planto undertake “and then you stop talking ...if you stop talking, the sales guy will keeplowering his price until you say some-thing.”

The resulting squeeze, according tothe Canadian Association of Oilwell

l F I N A N C E & E C O N O M Y

‘R’ word haunts oil patchFailure of US manufacturing to offset weakness in energy industry is taking a large bite out of Canada’s upstream capital spending

PETROLEUM NEWS • WEEK OF JULY 19, 2015 7

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Statistics Canada, a federalgovernment agency, said Canada’soil and gas stronghold in Albertais facing an 11 percent decline in

private and public capitalspending to C$82 billion this year.

see UPSTREAM SPENDING page 9

By GARY PARKFor Petroleum News

I f oil prices regain US$80 levels, RoyalDutch Shell may be open to restarting

shelved oil sands projects, said MarvinOdum, the company’s director of UpstreamAmericas.

The three operations put on hold are the200,000 barrels per day Pierre River mine,a 100,000 bpd expansion of its Jackpinemine that has yet to be sanctioned and the80,000 bpd Carmon Creek project that hasbeen delayed two years to 2019.

Apart from oil prices, decisions on theseinvestments also depend on Shell’s abilityto wring cost savings from suppliers and, inthe case of Carmon Creek, redesigning thethermal recovery project and re-tenderingsome contracts.

Two months ago, Shell mothballedwork on oil sands projects as part of a com-pany-wide effort to eliminate US$15 bil-lion from its capital budget over threeyears.

Costs have come downBut the company said it has seen costs

come down “considerably,” helping to off-set the decline of oil prices over the pastyear.

Odum told the Financial Post that thereis “no particular driver to make (the proj-ects) happen right now as we look at otherparts of the portfolio,” which has pushedthe oil sands towards Shell’s backburners.

Shell also has to adjust to the oil down-turn at the same time it is accommodating aUS$70 billion takeover of BG Group,which is due for closure early in 2016.

That transaction is expected to eliminateone of the two LNG projects that the com-panies had under consideration, but Odumbelieves there is still scope to proceed withLNG Canada, the consortium it is leading,because of its proximity to the largeststranded gas reserves in North America.

LNG Canada has just filed for a 40-yearNational Energy Board export license tocover 40 years, up 15 years from the cur-rent permit.

Odum said the “hard work around engi-neering and design” is in the completionstages “so we can put a specific cost on theproject.” But he rejected an earlier estimateof C$40 billion previously placed on theproject by Shell officials.

He told a Toronto forum that Canadaremains “an extremely important countryin the Shell portfolio and it is hard to seethat changing.” l

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

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Better.

EXPLORATION & PRODUCTIONHilcorp OK’d for Liberty hazard survey

Hilcorp Alaska has received an incidental harassment authorization from theNational Oceanic and Atmosphere Administration’s National Marine FisheriesService for a shallow geohazard survey at the site of the proposed Liberty develop-ment in the Beaufort Sea.

NMFS said July 8 that the authorization is effective July 1 through Sept. 30. The survey will be in state and federal waters of Foggy Island Bay during the

2015 open-water season, the agency said, with the survey expected to be complete in45 days. Hilcorp said the shallow geohazard survey and strudel scour survey wouldhave a transition zone component on state lands, and occur in federal and state watersof Foggy Island Bay some 8 miles east of the Endicott Satellite Drilling Island, withthe survey primarily within the Liberty unit.

Hilcorp said in its application that it is evaluating development of the Libertyfield, in which it acquired a 50 percent interest when it bought several of BP’s smallerNorth Slope assets last year. The project’s preferred alternative is a gravel island tobe built over the reservoir with emphasis in the survey on obtaining subsurface infor-mation for development of a subsea pipeline.

Multibeam echosounder, sidescan sonar, sub-bottom profiles and magnetometeruse is planned to evaluate existence and location of archaeological resources, poten-tial geologic hazards on the seafloor and in the shallow subsurface, and to investigatestrudel scours and ice gouges. The proposed sonar survey vessel is about 40 by 14feet in size and because of the extremely shallow project area, an additional smallervessel may be used to safely extend vessel operations for data collection.

The incidental harassment authorization allows harassment of small numbers ofmarine mammals incidental to the shallow geohazard survey.

—KRISTEN NELSON

EXPLORATION & PRODUCTION

SAE gets IHA for Beaufort 3-Dseismic survey

The National Oceanic andAtmospheric Administration’sNational Marine Fisheries Service hasissued an incidental take authorizationto SAExploration Inc. for a 3-Docean-bottom-node seismic survey inthe Beaufort Sea. NMFS said theauthorization was effective July 1through Oct. 15, with actual dataacquisition expected to take some 70days.

SAE told the agency it expectseffectives shooting to occur about 70percent of the 70 days.

The survey will be in the nearshorewaters of the Beaufort Sea betweenHarrison Bay and the SagavanirktokRiver delta, with a maximum of 300square miles to be surveyed in 2015.

SAE said in its application that thework is being done in partnership withKuukpik Corp.

A Bureau of Ocean EnergyManagement application for the proj-ect described the proposed survey asmulti-year and multi-customer.

—PETROLEUM NEWS

PETROLEUM NEWS • WEEK OF JULY 19, 2015 9

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Drilling Contractors, has seen the numberof operating days in the drilling sectordrop to 25,000 this year from 50,000 lastyear, the number of wells drop to 5,500from 11,000 and the average number ofrigs working plummet to 184 from a fleetof 768.

Dan MacDonald, of RBC DominionSecurities, said the number of wells drilledin June was 39 percent below June 2014.

But Rob McNally, chief financial offi-cer for Precision Drilling, one of thelargest land drillers in North America, con-ceded “there is real gamesmanship goingon (with clients),” although he said somebig customers in the U.S. are still sharingtheir plans, even though producers in bothcountries may not actually have a planbecause of uncertainty over future com-modity prices.

Some room for rig reboundDespite the funk, Precision’s Chief

Executive Officer Kevin Neveu told theGlobe and Mail there is some room for theNorth American rig count to rebound nowthat the “rig count might have dropped alittle lower than necessary and our cus-tomers have saved more money than theyintended.”

However, a strong rig recovery wouldrequire prices of US$60-$70 a barrel.

“What we’re doing is staying veryready and working with our customers tomake sure high-grade rigs are ready torespond,” Neveu said.

With time to ponder a better future,Cenovus Energy, one of the top oil sandsproducers, would sooner not see pricesreturn to US$80, executive Vice PresidentHabir Chhina told a Calgary conferenceearlier in July.

Even in a US$50-$60 world “we got agreat opportunity” to cut capital and oper-ating costs by 30 percent.

“The key thing that’s going to happennow, with this downturn, is that the coststructure in the oil sands is going to comedown,” he said, suggesting that will makethe oil sands competitive against shale oildevelopment in the pursuit of capital.

Chhina even injected a light touch intohis remarks by declaring that “except foroil prices and share prices, everything’sworking very well.”

MEG Energy Vice President JohnRogers said that along with lowering oper-ating costs his company would raise pro-duction for the foreseeable future afterdeliberately cutting spending this year “toregain control over our cash flow.” l

continued from page 7

UPSTREAM SPENDING

l E N V I R O N M E N T & S A F E T Y

B.C. First Nationsbanding togetherEstablish environmental authority to assess impact of range ofindustrial projects, led by LNG; industry alliance shares concerns

By GARY PARKFor Petroleum News

Five First Nations in northwesternBritish Columbia have formed an

authority to assess the environmentalimpact of industrial projects — led byseveral LNG ventures — in their area.

Leaders of the TsimshianEnvironmental Stewardship Authority aregenerally supportive of the push for B.C.LNG exports, said Clarence Innis, chiefof the Gitxaala First Nation.

He said having aboriginal communi-ties work together is “at the core of ourTsimshian culture” and will enable themto “protect our most important resource”— our environment.”

Joe Bevan, chief of the Kitselas, saidthe five First Nations “thought it wouldbe really great to come out with a similarvoice — and it would be very strong.”

The five leaders said in a letter to theirmembers, the British Columbia govern-ment and the industry that they lookedforward to engaging with the govern-ments of British Columbia and Canadaand project proponents “to work togetherto find a path forward that protects theenvironment legacy with which we areentrusted.”

“Our nations agree that resourcedevelopment can only take place whenthe environment and our communities areprotected,” the letter said.

“While the responsibility to evaluateand manage the impacts of developmentremains with each First Nation, the(TESA) will provide a venue for thenations to come together to address com-mon environmental stewardship issues.”

Impact not clearWhether the new initiative will speed

regulatory reviews or add a new layer to acomplex process is not yet clear.

But the industry’s British ColumbiaLNG Alliance, representing seven proj-ects, indicated it was willing to give thebenefit of the doubt to TESA, “shares thesame view (as First Nations) and looksforward to continuing dialogue with allTsimshian First Nations regarding envi-ronmental stewardship and how best toincorporate First Nations interests intothe existing environmental assessmentframework and processes,” said AlliancePresident David Keane.

TESA said it will provide expertadvice on baseline scientific studies thatevaluate the current state of the environ-ment and environmental monitoring pro-grams and provide information to com-munity members on the potential effectsof projects.

TESA said it will also help determinehow to address environmental effects andstrengthen oversight in federal andprovincial environmental reviews.

Bevan said the TESA member nationswill pool their resources, including tech-nical staff, to support the authority, whileexpecting governments and project devel-opers to provide funding through projectagreements.

Some have signed agreementsThe Kitselas and Metlakatla, both

members of the TESA, signed impactagreements last year with PacificNorthWest LNG, led by Malaysia’s

see FIRST NATIONS page 10

By GARY PARKFor Petroleum News

Sitting on a treasure trove of onshoreoil riches estimated at up to 300 bil-

lion barrels, Canada’s NorthwestTerritories is certain the time will comewhen those resources are developed, saidIndustry Minister Dave Ramsay.

Add to the oil a minimum 6 trillioncubic feet of natural gas in the MackenzieDelta that underpins the stonewalledMackenzie Gas Project and the chiefsalesman for the NWT has reason for opti-mism as he travels North America pro-moting the region’s energy potential andseeking out corporate candidates to tap it.

But Ramsay also concedes the NWThas “lots in common with other jurisdic-tions — we, too, are looking for ways toget our resources to market.”

His latest chance to look for allies cameat the annual summit of the Pacific

NorthWest EconomicRegion — compris-ing five states,including Alaska,three Canadianprovinces and twoterritories — ofwhich he is the cur-rent president.

“That, and work-ing with others toensure it happens, has been an obvioustheme (at the conference),” he toldPetroleum News from the conference atBig Sky, Montana.

In addition to conference sessions, heheld sideline discussions with the Alaskacaucus and with pipeline companies.

‘Corridor concept’The ace in the NWT hand remains

what it calls the “corridor concept” —building a pipeline down the Mackenzie

River Valley to the Beaufort Sea or possi-bly across the Yukon and Alaska to con-nect with the trans-Alaska oil pipeline.

Whatever market-directed options sur-face, Ramsay is adamant that the NWTwill not merely be an overland conduit forshipping bitumen from the Alberta oilsands.

He said any pipeline must be tied to thedevelopment of the NWT’s own reserves,noting that aboriginal communities in theNWT will only support a pipeline projectif they derive benefits from resources ontheir lands.

Ramsay concedes “we have to take thelong game approach (to developing bothonshore and offshore resources). But wewill get there eventually.”

Plan to fast track pipelinesWhile PNWER was engaged in its

deliberations there was an unexpecteddevelopment in Canada, when the pre-miers of Canada’s 10 provinces and threeterritories rolled out a draft plan to fasttrack new oil pipelines as part of aCanadian Energy Strategy.

At their annual meeting in St. John’s,Newfoundland, they were presented witha sweeping vision to develop oil, naturalgas and electricity across Canada, with theemphasis where Ramsay wants to see it —making a commitment to build moretransmission systems by eliminatingobstacles to regulatory approvals.

The draft strategy calls for the premiersto “develop and enhance ... transportationnetworks,” including oil and gas pipelinesand electricity grids for both domestic andexport markets.

“As energy production expands tomeet growing domestic and international

energy demands, our country must havethe necessary pipelines, electricity sys-tems and other energy infrastructure inplace to move energy products to the peo-ple that need them,” the document said.

That puts the pressure on provincialand territorial governments to “improvethe timeliness and certainty of each juris-diction’s regulatory approval decision-making processes for energy develop-ments,” partly by eliminating “duplicationand inefficiencies” that have stalledprogress on several projects, mostlypipelines out of the Alberta oil sands.

Environmental, First Nations concernsBut the strategy makes only passing

reference to environmental concerns that,along with accommodating the demandsof First Nations, have held up all of themajor pipeline projects.

Without suggesting any binding com-mitments, the draft plan makes a generalpledge to “transition to a lower carboneconomy” through measures such as car-bon capture and carbon pricing.

However, the draft calls for the govern-ments to “actively pursue absolute (green-house gas) emission reductions based onsound science (and) collaborate on thedevelopment of an integrated pan-Canadian and North American approachto GHG reductions.”

The challenge posed by climate changeis reflected in efforts so far by the threelargest provinces, Ontario, Quebec andBritish Columbia, which have made someheadway in lowering overall emissions,while Saskatchewan’s output has climbed66 percent since 1990 and Alberta’s hasrisen 53 percent.

Even Alberta’s freshly elected NewDemocratic Party government of PremierRachel Notley has given no indication it isprepared to set absolute GHG reductions,committing itself only to make the currentintensity-based targets tougher.

l G O V E R N M E N T

To market, to market ...Hiatus in Canada’s Arctic onshore, offshore exploration creates time for provinces, territories to fast-track pipeline approvals

10 PETROLEUM NEWS • WEEK OF JULY 19, 2015

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Petronas, but the Kitsumkalum andGitxaala have yet to say whether theyendorse the project, although theGitxaala are edging closer to joiningthe agreement, Innis said.

The Gitga’at First Nation, makingup the fifth current member of theTESA, said earlier in July that it wantsa judicial review of the BritishColumbia government’s consultationprocess for Pacific NorthWest.

The traditional areas of TESA

nations encompass the Skeena River,including the Prince Rupert area andthe mouth of the Douglas Channel —both vital entry and exit points for nat-ural gas to fuel liquefaction facilitiesand LNG tankers.

Also on the proposal list for TESAoversight are LNG associatedpipelines, geothermal energy, industrialdevelopment parks, a bio-coal plant,several run-of-the-river hydroelectricprojects, expansion of a container ter-minal and a potash terminal. l

continued from page 9

FIRST NATIONS

DAVE RAMSAY

see PIPELINE APPROVALS page 17

“These things are cyclical and ourhope is that we will be back in theCentral Mackenzie Valley sooner

rather than later,” while the NWTgovernment believes the Beaufort

hopes will also be revived, Ramsay said.

page12

Tangen: Alaskans must demandright to develop own resources

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of July 19, 2015

l E X P L O R A T I O N

NORTHERN NEIGHBORSCompiled by Shane Lasley

Rickford details Canada support of miningCanada Minister of Natural Resources Greg Rickford July

14 reiterated the federal government’s support of Canada’smining sector. Rickford, who is also the minister for theFederal Economic Development Initiative for NorthernOntario, delivered this message during a keynote speech atthe Greenstone Mineral Exploration Forum in Ontario.According to the natural resources minister, the mining, min-erals and metals sector accounted for nearly C$63 billion ofCanada’s gross domestic product and one-fifth of the coun-try’s merchandise exports during 2014. With Canada attract-ing roughly 14 percent of global mineralexploration budgets and more than 200active mines across the country, the min-ing sector employed nearly 380,000Canadians, including about 10,000Aboriginal peoples. In outliningCanada’s ongoing support for the miningsector, Rickford highlighted the follow-ing measures from Economic ActionPlan 2015: the federal MineralExploration Tax Credit was extended foranother year to provide junior miningcompanies with improved access to exploration financing; thedefinition of Canadian Exploration Expenses was expandedto include costs associated with environmental studies andcommunity consultations; $23 million allocated to stimulatethe technological innovation needed to develop rare earth ele-ments and chromite over five years; and the TargetedGeoscience Initiative, a geoscience program that providesindustry with the next generation of geoscience knowledgeand innovative techniques to better detect buried mineraldeposits, was renewed for C$22 million over five years. “Ourgovernment’s enhanced support for the mining industrythrough Canada’s Economic Action Plan will help ensure athriving, dynamic mining sector that will provide jobs andgrowth for Canadians,” said Rickford. The minister also high-lighted the importance of collaboration and consultation inthe responsible development of Canada’s natural resources.

Rockhaven consolidates Klaza land positionRockhaven Resources Ltd. July 14 reported the addition of

868 mineral claims to its Klaza gold-silver property in south-ern Yukon Territory. This major expansion is the result offour separate agreements, including a property exchangedwith Strategic Metals Ltd., Rockhaven’s largest shareholder.In exchange for five Strategic properties adjacent to or nearKlaza (BBB, Sked-Desk, Dade, Queen and Nor), Rockhavenhas agreed to transfer five of its distal Yukon properties(Plata, Mount Hinton-Gram, Groundhog-Grayling-Cyr, Zapand Kluane-Ellias). In addition to the properties, Strategicwill pay Rockhaven C$250,000 in cash. The exchange ofproperty packages provides both companies with longer termbenefits that did not exist prior to the exchange. Considered arelated-party transaction, the exchange will require minorityapproval from shareholders of both Rockhaven and Strategicat their annual general and special meetings to be held laterthis summer. In addition to the claims acquired fromStrategic, Rockhaven acquired three claim groups from third-party vendors. Rockhaven has signed a property purchaseagreement to acquire 116 mineral claims immediately adjoin-ing the southern boundary of the Klaza property. With theC$250,000 from Strategic, Rockhaven is able to acquire fullownership of the Rusk property, a group 116 claims adjacentto the south of Klaza, and acquire the Krast property, 32claims immediately east of Klaza. Additionally, Rockhavenhas fully exercised an option to acquire the Val claimsthrough the issuance of 118,047 Rockhaven shares to the

see NORTHERN NEIGHBORS page 13

Drills turn on APFirst Quantum funds drilling aimed at porphyry targets on Alaska Peninsula

By SHANE LASLEYMining News

First Quantum Minerals Ltd. has agreed to investUS$2 million on a drill program aimed at further

investigating the potential of Millrock ResourcesInc.’s highly-prospective copper-gold project inwestern Alaska. The roughly 500,000-acre propertyextends about 75 miles from Stepovak Bay near thesouthwestern end of the Alaska Peninsula to a fewmiles north of Chignik Bay, one of the primary portsin the area.

Millrock optioned the property in 2012 fromBristol Bay Native Corp., the Alaska Native regionalcorporation that owns the subsurface mineral rights.Surface rights are held by Alaska Native village cor-porations.

Millrock President and CEO Greg Beischer toldMining News that he feels fortunate that BBNC atlarge and particularly the shareholders that live in thenearby villages have granted his company permis-sion to explore this highly prospective region of theirlands.

Since cutting a deal with the corporation,Millrock has advanced exploration in measuredstrides that includes a US$600,000 reconnaissanceprogram funded by First Quantum in 2014. Inexchange for funding the exploration of some mostintriguing targets on the property, Millrock grantedFirst Quantum an exclusive right to enter an option toearn up to an 80 percent joint venture interest in theproperty if it liked what it saw on the first-pass explo-ration.

Aleutian ArcThe Alaska Peninsula project covers a stretch of

the Aleutian Arc, a Pacific Ring of Fire island arcbeing formed as the Pacific Ocean plate dives underthe North American plate. This ongoing tectonicactivity is witnessed in the geologically young min-eralization – 3 million to 21 million years – being tar-geted by Millrock and First Quantum’s exploration.

The geologically active region has received limit-ed modern exploration and is prospective for epither-mal gold as well as intrusive-related deposits such asskarns and porphyry copper-gold mineralizing sys-tems.

While systematic mineral exploration of thisregion is limited, at least 34 known mineral occur-rences have been identified on the Alaska Peninsulaproperty.

To narrow the search, the partners started off the2014 season with 1,140 line-kilometers of high-reso-lution airborne magnetic and resistivity surveysflown over three of the highest quality porphyry cop-per-gold occurrences – Kawisgag, MDB and DryCreek.

Millrock and First Quantum geologists followedup the geophysical work with a mapping and sam-pling program.

Millrock reported, “The results were very encour-aging. Classic alteration patterns for porphyry copperdeposits were defined at each prospect from rocksample analysis. Zoned metal anomalies from soilsampling match well with the alteration patterns.Drill testing is warranted at each of the threeprospects.”

Results from this initial work, intrigued FirstQuantum enough to take up the option and fund a2,400-meter drill program aimed at investigatingwhat lies below the surface at two the most promis-ing prospects – Dry Creek, formerly known as BeeCreek, and MDB, short for Mallard Duck Bay.

Classic porphyry signatureLocated near the northern end of the Alaska

Peninsula land package optioned by Millrock, DryCreek is the only prospect that has been previouslydrilled.

Dated at roughly 3.6 million years, the porphyrymineralization found at this prospect is hosted inhornfelsed sediments intruded by multi-phase dioriteintrusive rocks containing mineralized veins and dis-seminated chalcopyrite, molybdenite and pyrite.

The prospect was initially explored by Bear CreekMining, which drilled five holes in 1976. One holecut 160 meters averaging 0.25 percent copper, 0.011percent molybdenum, including 20 meters of 0.35percent copper and 0.018 percent molybdenum,according to a Bear Creek Mining report.

Similar results were encountered in two holessuccessfully completed by Metallica Resources Inc.and Full Metal Minerals Ltd. in 2006, including oneintercept of 118 meters averaging 0.32 percent cop-per and 0.21 g/t gold.

Soil sampling completed by Full Metal andMetallica outlined a 0.5 percent copper anomaly cov-ering roughly 250 acres and a more localized 0.05percent molybdenum anomaly and discontinuous 0.5parts-per-million gold anomaly.

This historical work along with sampling com-pleted last year outlines a core zone rich in copper,gold and molybdenum surrounded by a halo ofanomalous zinc, lead and manganese. All told, thezoned mineralization covers roughly 3,000 acres.

“We found this beautifully zoned alteration sys-tem, and we found this beautifully zoned metallicanomaly in soil,” Beischer said. “It is just an absoluteclassic porphyry signature.”

Results of an airborne magnetic survey flownover the area suggest that mineralization identifiedon the surface at Dry Creek may continue below aridge to the southwest.

A promising induced polarization chargeabilityanomaly that has eluded past explorers will be the

GREG RICKFORD

see DRILL PROGRAM page 12

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The zoned alteration system and soil anomaly at DryCreek offers Millrock Resources Inc. and FirstQuantum Minerals Ltd. a “classic porphyry signature”to target with drilling currently underway at theAlaska Peninsula project in Southwest Alaska.

By J. P. TANGENSpecial to Mining News

A brief survey of the history ofmankind suggests that most com-

munities were organized around the suc-cessful exploitation of nearby naturalresources. More “civilized” city-stateswere able to collectively develop theavailable resources with efficiencies thatgenerated surpluses. Such efficienciesrequired a class of leaders, which, inmany instances, favored the ambitious.Ambitious leaders, when they gained con-trol of metals, were able to expand theiraegis by conquest. As wealth accumulat-ed, exchange media, frequently metallic,were needed. In a simpler world, it waseasy to see that wealth was directly tied tothe amount of sheep you could raise, riceyou could harvest or gold you could mine.

Somehow, in our modern era, we havelost sight of the direct relationshipbetween wealth and resource develop-ment. It appears that there are an awful lotof folks out there who assume, for lack ofa clearer understanding, that electricity,for instance, comes from a hole in thewall. Over time innumerable politicaltheories have been tried, ranging fromtotal anarchy to brutal dictatorships;somewhere toward the middle of the scaleare the various social democracies thatmost First World nations today subscribeto. They are typically overlain by a rea-sonably well-regulated form of capitalismthat tends to favor rewarding entrepre-neurial success on the one hand and com-passionate benevolence on the other.

Social democracy, by its very nature isnot static, but drifts off the bubble withregularity.

It may not be an overstatement, forinstance, to note that when a governmentis directly influenced by the bulk of thepopulation of the nation, many of theelectorate will choose to disburse thenation’s wealth to themselves. In moder-ate measure, doing so strengthens thenation; however, as a policy choice,siphoning off the nation’s wealth forsocial programs cannot be allowed todrain the engines of productivity for verylong, for when the national wealth isdepleted, not only do the social programsterminate; but the rebuilding of thenational productivity will, predictably, beslow.

Witness Greece, where, apparently, itssocial welfare programs have become soentrenched as to ensure that the people ofGreece will have to make do without

many of the past benefits of living thereand simultaneously commit themselves toconverting its lavish resources into global-ly competitive products.

Perhaps, to the other extreme, theUnited States has, until recent years fos-tered the development and marketing ofits resources. America was quick to real-ize its strengths in terms of agriculture,animal husbandry, fisheries – includingwhaling, timber, mining, wildlife – frompassenger pigeons to buffalo – and hydro-carbons. In absence of governmental reg-ulation, over-exploitation has taken itstoll. Well-regulated resource developmentindustries, on the other hand, have flour-ished.

The current dilemma that confronts usas a nation and as a state at the moment,however, is that the regulators have lostsight of the nexus between resourcedevelopment and wealth. It is axiomaticthat bankers and bureaucrats, engineersand educators, architects and authorsdon’t create wealth. Their contributionsare manifest, but they do not increase thesize of the economic pie. Only the farm-ers, the fishermen, the ranchers, the min-ers and the loggers can do that. If you arenot in the business of harvesting some-thing from the land or the sea, you are rid-ing for free.

If the regulators are being driven to cir-cumscribe the means and methods ofresource recovery, they put the expansionof the economic balloon at risk. If theelectorate demands ever increasing socialservices, a static or dwindling nationalbank account draws us toward the Greek

abyss. In this context, Alaska’s prognosisat the moment looks grim.

Our state’s social programs, includingeducation, health and social services aredrawing down our fiscal resources at arate that diminishes our ability to respond.In due course, it is foreseeable that ourreserves and even our permanent fundmay be zeroed out. In the meantime, thethroughput of oil in the Trans-AlaskaPipeline is well below capacity and con-tinues to fall. Parenthetically, the dreamof a major gas pipeline is an elf at the endof a rainbow. In addition, the regulatoryburden on resource development isbecoming weightier every day.

When we, as children, ask wherebabies come from, stereotypically, theanswer is “from Mommy’s belly.” Toomany of us are satisfied with that answer,and too few of us ask the natural follow-up question, “how on earth did it getthere?”

When it comes to resource develop-ment, we all need to be asking the ques-tion of where our common wealth comesfrom and not be satisfied with the simplebut incomplete answer. Our wealthcomes from the development of ourresources; and we, Alaskans, who live ina resource rich state, need to be demand-ing the right to develop those resources,in a well-regulated way, as aggressivelyas we possibly can. If our right to developour resources continues to be increasinglycircumscribed, while our health, educa-tion and social services costs are increas-ingly enhanced, we shall surely enjoy thebenefits of neither. l

l O P I N I O N

Alaskans ask: Where did I come from? The federal government seems determined to regulate resource development out of existence at a time when we cannot pay our bills

12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JULY 19, 2015

Mining & thelaw

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

Our People Our Community

kinross.com

Janice Durfee first moved to Juneau, Alaska in 1996 with

hopes of working at Fort Knox someday. She had been

a truck driver at mines in the Lower 48 and had heard

wonderful things about Alaska. In 2003, Janice and her

husband, Larry, moved to Fairbanks and Janice began

working at Fort Knox.

“Fairbanks has that small town feel that I grew up with in

Montana. Plus, there are real seasons up here!” she says.

Which was good news for the Durfee’s; they both enjoy

camping, river fishing, and, Janice’s favorite, gardening.

“As a gardener, if you take care of the land, then the land

will produce. That’s a value that I share with Fort Knox.

They understand and take care of the land.”

Janice says that she loves her work and her crew of

roughly 60 co-workers. “You get to be good friends with

the bunch that you work with…I hope to be at Fort Knox

until I retire.”

target of one of the holes drilled this year.Bear Creek drilled above the anomaly in1976, but without the benefit of knowingwhat lies below and below the depth of anopen-pittable deposit, stopped the holeshort.

“Those guys knew what they weredoing,” Beischer reflected on the historicaldrilling.

Full Metal, which completed the IP sur-vey, recognized the promising target butwas unable to reach it due to losing the holeto poor drilling conditions.

Millrock is sending a drill bit down toreach this elusive IP anomaly in drillingnow underway.

Although several holes have beendrilled at Dry Creek, Millrock and FirstQuantum have plenty of untested geo-chemical and geophysical anomalies at thisprospect also waiting to be drilled. Onesuch anomaly within 500 meters of the firsthole will be the target of a second hole atDry Creek.

“There is another good anomaly withinthe same alteration system that we willdrill,” Beischer explained.

Huge alteration systemSituated roughly 20 miles south of Dry

Creek and about three miles south of thelocal community of Chignik Lagoon,MDB hosts a large alteration zone that wasfirst recognized by prospectors at the turnof the 20th Century.

“MDB is … is a huge alteration systembut there doesn’t appear to be a lot of basemetals at surface,” Beischer told Mining

continued from page 11

DRILL PROGRAM

see DRILL PROGRAM page 13

property vendor. “Securing a much larger land position in the district is importantfor both continued exploration and logistical purposes, as Rockhaven advancesthe Klaza deposit toward development,” explained Rockhaven CEO Matt Turner.The Klaza property hosts 7.04 metric tons of inferred resources averaging 4.19grams per metric ton (948,348 ounces) gold and 96.23 g/t (21,780,313 oz) silver.A 15,000-meter drill program designed to expand this resource is currentlyunderway.

Minto Mine production tops expectationsCapstone Mining Corp. July 14 said copper production at its Minto Mine

continued to exceed expectations during the second quarter and is now projectedto top guidance for annual production. For the quarter ended June 30, Mintoproduced 4,141 metric tons of copper in concentrate and cathode, nearly identi-cal to first-quarter production. Capstone said ore from Area 118 undergroundcontinued to run significantly above model grades and enhanced mining prac-tices resulted in lower dilution than budgeted. Further unplanned ore productioncame from the Area 2 Stage 2 pit above the water storage level. The YukonWater Board issued a draft water use license on May 29, and is now in theprocess of issuing the final license. While awaiting the license, Capstone contin-ues to process underground and stockpiled ore. The company’s three mines –Minto; Pinto Valley, Arizona; and Cozamin, Mexico – produced 21,100 metrictons of copper during the second quarter. Capstone’s 2015 production guidanceof roughly 90,000 metric tons of copper remains unchanged, however the distri-bution by mine is expected to be different than originally guided, with outper-formance at Minto expected to make up most of an anticipated shortfall atCozamin for the year.

BC permits limit re-start of Mt. PolleyBritish Columbia Ministry of Energy and Mines and Ministry of

Environment July 9 reported the issuance of conditional permits that will allowfor the restricted resumption of operations at Imperial Metals Corp.’s MountPolly Mine in central B.C. “This conditional restricted permit to re-start opera-tions is the first of three significant steps the company needs to continue opera-tion and does not include the ability to discharge water off the site,” explainedB.C. Minister of Energy and Mines Bill Bennett. The amended Mines Act andEnvironmental Management Act permits allow Imperial Metals subsidiaryMount Polley Mine Corp. to process up to 4 million metric tons of ore over oneyear, or about 50 percent of the plant’s capacity. The tailings from this restrictedoperation will be stored in the formerly mined Springer pit. Water and tailingslevels must remain 20 meters below the top of the lowest edge of the SpringerPit. Other conditions of the permit include: No discharge of water is allowedunless authorized by future permits; Mount Polley Mining must pay an addition-al C$6.1 million reclamation security; an updated surface and groundwater mon-itoring plan must be submitted for approval by July 31; a five-year mine planand reclamation plan must be provided to government by Sept. 30; and a long-term water treatment and discharge plan must be submitted by June 30, 2016.The mine will not be permitted to continue operations if it fails to meet thisdeadline. “Ministry experts made the decision to issue the EnvironmentalManagement Act permit based on sound scientific evidence,” said B.C. Ministerof Environment Mary Polak. “Their due diligence, along with the extensive FirstNations and public consultation that took place with this application providesconfidence the permit could be issued without harming the environment.”Imperial Metals estimates it will take about 30 days before it can begin produc-tion at Mount Polley. The company said the restart will allow the mine to retaina large portion of its skilled work force, which is critical to ongoing operations.During restricted operations, the company expects to provide jobs for up to 220workers. Ministry of Energy and Mines inspectors will be onsite during the ini-tial start-up period and will conduct regular site inspections once the mine isoperating. Additionally, permit conditions require the company to provide week-ly reports to government, First Nations, the Cariboo Regional District and thecommunity of Likely, detailing water management and water quality results. Ifnecessary, ministry inspectors have full authority to issue stop work orders forany area of the mine found to be in non-compliance. Imperial said the rehabili-tation and restoration of the areas affected by last year’s breach of the tailingsembankment at the Mount Polley mine will continue during the period of modi-fied operation.

New uranium targets tested at AngilakKivalliq Energy Corp. July 9 reported that a C$1.5 million exploration in

underway at its Angilak uranium property in Nunavut. The company plans todrill up to 1,000 meters in six holes at the property’s Dipole target. Ground geo-chemical surveying will run concurrently with the drill program, following-upon priority targets identified along the Dipole-RIB trend during the 2014 season.Based on corroborative geophysical and geochemical exploration, Kivalliq saidDipole and RIB are excellent analogues to the Lac 50 deposit, which lies about25 kilometers (16 miles) to the northeast.

13NORTH OF 60 MINING

PETROLEUM NEWS • WEEK OF JULY 19, 2015

Shane Lasley PUBLISHER & NEWS EDITOR

Rose Ragsdale CONTRIBUTING EDITOR

Mary Mack CEO & GENERAL MANAGER

Susan Crane ADVERTISING DIRECTOR

Heather Yates BOOKKEEPER

Bonnie Yonker AK / INTERNATIONAL ADVERTISING

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Curt Freeman COLUMNIST

J.P. Tangen COLUMNIST

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Forrest Crane CONTRACT PHOTOGRAPHER

Tom Kearney ADVERTISING DESIGN MANAGER

Renee Garbutt CIRCULATION MANAGER

Mapmakers Alaska CARTOGRAPHY

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

NEWS • 907.229.6289publisher@miningnewsnorth.com

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ADVERTISING Susan Crane • 907.770.5592scrane@petroleumnews.comBonnie Yonker • 425.483.9705byonker@petroleumnews.com

FAX FOR ALL DEPARTMENTS907.522.9583

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

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

Several of the individualslisted above are

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

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

Phone: 907.229.6289 • Fax: 907.522.9583

NEWS NUGGETSCompiled by Shane Lasley

NovaCopper begins $5.5M Arctic programNovaCopper Inc. July 10 reported the start of a work program focused on

advancing a pre-feasibility study for the development of an open-pit mine at Arctic,the most advanced of the Upper Kobuk Mineral Projects, a partnership betweenNovaCopper and NANA Corp., the Alaska Native regional corporation that repre-sents the Iñupiat of Northwest Alaska. The Arctic pre-feasibility work is expected tobe carried out over a two- to three-year period. NovaCopper has approved a US$5.5million budget for the 2015 field program that will include 2,500 meters of in-filldrilling at the Arctic deposit designed to improve the confidence level of theresource model with the goal of re-categorizing the in-pit inferred resources tomeasured and indicated. Other facets of the 2015 program include: geotechnical andhydrology drilling to better understand the wall rock characteristics and hydrologywithin the open pit area; waste rock characterization studies to assess acid genera-tion potential; wetlands delineations studies; and continued environmental baselinestudies. This work will form the basis for completing a pre-feasibility study on theArctic deposit. NovaCopper also plans to advance assessment work at Bornite thatis primarily focused on evaluating the potential synergies between the Arctic andBornite, which are situated about 16 miles apart. Continuing an emphasis on localhire, NovaCopper is working closely with NANA on implementing oversight of theproject and carrying out community relations and work force development strate-gies aimed at maximizing local hire.

Kensington gold production down in Q2Coeur Mining Inc. July 9 said its Kensington Mine in Southeast Alaska produced

29,845 ounces of gold during the second quarter, down about 12 percent from the33,909 oz recovered during the first quarter. Mill throughput during the secondquarter averaged a robust 1,875 tons per day, but gold grades dipped to 0.18 oz/tcompared with 0.24 oz/t during the first three months of 2015. Coeur anticipatesthat Kensington will produce 110,000-115,000 oz of gold for full-year 2015.Overall, Coeur’s operations produced 4.3 million oz of silver and 80,855 oz of goldduring the second quarter.

continued from page 11

NORTHERN NEIGHBORS

News.Two additional waves of exploration

investigated MDB, including mapping andsampling by Bear Creek Mining andResource Associates in the 1970s and1980s; and polarization and ground mag-netic surveys completed during FullMetals’ time in the region.

The 2005 geophysical work identifiedtwo chargeability anomalies, one coinci-dent with exposed mineralization in apotassic alteration zone that has been datedat about 21 million years.

Beischer said the enormous size of thealteration system coupled with the lack ofmetals at surface made MDB a challengingprospect for previous explorers to targetwith drilling.

Millrock, however, is up to the chal-lenge of tackling this huge alteration sys-tem that could be the surface expression ofa porphyry ore body waiting to be discov-ered, he said.

In 2014, Millrock and First Quantumcarried out systematic exploration thatincluded airborne magnetic surveys, map-ping and rock sampling. This program hashelped the partners refine the geologicalinterpretation of the large and largely unex-plored prospect.

This year, the partners will test theirideas by drilling the best of a number ofstrongly anomalous zones their work hasidentified at MDB. l

continued from page 12

DRILL PROGRAM“It is just an absolute classic

porphyry signature.”–Greg Beischer, president and CEO,

Millrock Resources Inc.

14NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF JULY 19, 2015

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By BILL WHITEResearcher/writer for the Office

of the Federal Coordinator

Alaska LNG project sponsors often remind peopleit’s really three projects — a gas treatment plant

on the North Slope, a long pipeline bisecting the stateand a liquefaction plant at coastal Nikiski. Each wouldcost billions of dollars, and need tons of steel, thou-sands of workers and years to con-struct.

But the middle segment of thistrinity — the 800-mile natural gaspipeline from Prudhoe Bay toNikiski — is the symbol of Alaska’s 40-year quest forNorth Slope natural gas development.

The project sponsors are still working out the exactroute for the 42-inch-diameter pipeline, testing soils,searching for earthquake faults, scoping the most build-able corridor with the least environmental impact andthe fewest construction problems. It’s all part of theirpreliminary front-end engineering and design efforts,expected to last through 2015. The “study corridor” is2,000 feet wide. The pipeline’s ultimate right of wayand footprint would be much narrower.

Preliminary maps filed in February 2015 with theFederal Energy Regulatory Commission provide a gen-eral path the sponsors and their teams are reviewing.

If you could walk, drive or fly over the route, this iswhat you would see and could learn about the peopleand places along the way. (We consulted a variety ofpublic filings from current and past projects along thecorridor, as well as other publications, in preparing thisnarrative.)

Point Thomson: The realstarting point

More than one-quarter of theproven gas reserves that would feedthe Alaska LNG project reside atthe Point Thomson Unit, 60 mileseast of Prudhoe Bay (home to theproject’s other start-up gasreserves). Point Thomson is the truelaunch point for the LNG mega-project.

ExxonMobil is leading the Point Thomson develop-ment, which is scheduled to start producing natural gascondensate in early 2016. The partners expect that this $4billion initial production phase will help them master thetricky reservoir’s “plumbing” in anticipation of beginninggas production for the separate Alaska LNG project in themid-2020s.

Point Thomson lies a few miles west of the ArcticNational Wildlife Refuge border and about 60 miles westof the Beaufort Sea coastal community of Kaktovik. Mostof Kaktovik’s 250 residents are Inupiat, whose NorthSlope roots go back thousands of years. The nameKaktovik, or “seining place,” signifies the region’s fishingtradition.

The field and pipeline route lie along the Arctic coast,among the northern-most places in the United States. Itcan snow there any month, and it’s reliably covered withsnow eight months of the year. It is completely sunlessabout two months a year. During the warmer months theterrain is largely a squishy mass of peaty tundra and otherwetlands, including ponds, lakes, streams and braidedrivers.

The project sponsors have not decided whether to bury

or elevate the pipeline that would carry Point Thomsongas to Prudhoe Bay. In any event, construction wouldoccur during winter, when the ground is frozen.

The pipeline generally would trace the coastline a mileor so inland.

Sedge and dwarf shrubs dominate the vegetation, bothwell-suited to thrive in cold, soggy soil. A deep per-mafrost layer slightly below the surface keeps soils water-logged as moisture can’t filter down.

Numerous freshwater lakes pockmark the flat tundra,providing habitat for ninespine sticklebacks, whitefish,blackfish and others.

Bears — polar and brown — roam the grounds, as docaribou, musk ox, foxes and small mammals such as arc-tic ground squirrels, collared and brown lemmings, rootvoles and barren shrews.

The small critters are prey to larger mammals and suchbirds as raptors and owls. The wetlands support dozens ofmigratory bird species — including geese, ducks, loons— for nesting and molting in summer. Other areas ofAlaska’s North Slope see a much greater density of birdmigrations each year.

NEAR MILEPOST 20. One-third of the way to Prudhoe,just shy of the 20-mile marker, the gas line would passsouth of Badami, an oil field BP started in 1998. Badamihas been an inconsistent producer — though a new opera-tor, Savant Alaska, is giving it a try.

Until work started at Point Thomson, Badami was theNorth Slope’s easternmost field. The liquids that will flowfrom Point Thomson starting in 2016 will feed into theexisting oil pipeline from Badami to Prudhoe Bay.

NEAR MILEPOST 24. The gas line would cross threemajor drainages along the route, and here it would cross

l N A T U R A L G A S

If you could tour the pipeline routeThe northern portion of the route begins at Point Thomson, continues west to Prudhoe Bay, then heads south toward Interior Alaska

PETROLEUM NEWS • WEEK OF JULY 19, 2015 15

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PIPELINES & DOWNSTREAMKeystone two-step

In the absence of any fresh stirrings, good or bad, in the Obama administration,TransCanada has created its own news on the Keystone pipeline system.

The Calgary-based company is testing the open market for Keystone XL byinviting additional shipping commitments, while offering an additional 10,000-15,000 barrels per day of capacity on the original Keystone line.

Interested parties have been given until Sept. 2 to submit binding bids for XL,the planned 830,000 bpd system that is designed to cover 2,600 miles and deliveroil sands bitumen from Alberta and Bakken crude from North Dakota to key out-lets in Wood River and Patoka, Illinois, Cushing, Oklahoma, and Port Arthur,Texas.

TransCanada offered no explanation for the open season, but has repeatedlyinsisted that none of its contracted shippers has shown any desire to quit the proj-ect, despite the continued delays in negotiating the regulatory system and courtsin the United States and the absence of any commitment on when President

see OPEN SEASON page 17

see PIPELINE TOUR page 16

BILL WHITE

the first of them, the Shaviovik River, forthe Native word that means “place wherethere is iron.” The line would encountermany smaller streams along the way, too.

NEAR MILEPOST 33. Here lies the secondsignificant river, the Kadleroshilik, a 90-mile-long waterway that empties into theBeaufort Sea. An explorer named the riveralmost 100 years ago for a 200-foot-tallmound; the name means “possesses some-thing on top.”

NEAR MILEPOST 50. The mightiest of therivers along the pipeline route is theSagavanirktok, the “strong current” cours-ing along the Dalton Highway, the lifelinefor truck traffic to the North Slope. Hereyou enter the Prudhoe Bay oil and gascomplex — roads, rigs and runways;pipelines, people and power poles. It’s thenation’s largest conventional oil field.

NEAR MILEPOST 58. The Point Thomsongas pipeline would reach its endpoint atthe new gas treatment plant about eightmiles from the Sag River. At this plant, thepipeline’s gas would mix with PrudhoeBay gas and get processed to remove car-bon dioxide and other impurities beforestarting the 800-mile journey to the LNGterminal. The gas treatment plant wouldbe built near Prudhoe’s massive centralgas plant, which has handled the field’sgas production since 1986.

Miles 0-65: Prudhoe Bay and the coastal plain

The elephant-sized oil field atPrudhoe Bay is what transformed Alaskainto a major oil realm and anchors thestate’s economy.

Prudhoe Bay’s oil and gas productionfacilities are a complex of pads, wells,pipes, roads, machinery, plants and hous-ing that support production and handlingof hundreds of thousands of barrels ofoil, tens of millions of gallons of waterand billions of cubic feet of natural gasevery day. Everything there was installedwithin the past 40 years or so.Thousands of workers keep it humming.

Equipment mostly gets delivered viaone of two routes: one by land and oneby sea. The Dalton Highway is the loneroad linking Prudhoe to the rest ofAlaska, snaking 415 miles south until itconnects to the next road north ofFairbanks. West Dock is a 2.7-mileindustrial causeway/dock that knifes intothe Beaufort Sea north of the oil field.The industry built both to support devel-oping Prudhoe in the 1970s.

Buildings and plants too giant tomove by road get delivered by flotillascalled sealifts to West Dock during anice-free summer window. Alaska LNGplans summer sealifts, too. Likely fourof them to sail in enormous modules thatwould be assembled into the multibil-lion-dollar gas treatment plant.

The Dalton Highway would be a key

artery for moving pipe, machinery andpeople when building the pipeline fromPrudhoe Bay to Nikiski. The road wouldparallel the northern 400 miles or so ofthe gas pipeline. The mostly gravel high-way was named for James W. Dalton,who came from a pioneering sourdoughAlaska family and made a name as a ter-ritorial-era engineer involved in earlyNorth Slope oil exploration.

MILEPOST 0. The pipeline south wouldstart at the gas treatment plant.

After performing its main job ofremoving impurities, this plant wouldchill the gas below 32 degrees and com-press the molecules before the gas entersthe pipeline.

Chilling the gas keeps the pipelinecold. The pipe would be buried in per-mafrost in the Arctic and discontinuouspermafrost in some soils farther south. Acold pipe keeps the ground frozen.

Compressing the gas — pumping upits pressure — provides energy that pro-pels it through the pipe: The gas wouldleave the plant, start expanding and thusstream through the pipe. Along the line,a string of compressor stations wouldregulate the gas temperature and providepropulsion via compression. Movementgradually slows between compressor sta-tions due to the friction of gas moleculesagainst the steel pipe walls.

NEAR MILEPOST 5. The pipeline wouldpass Pump Station 1, the start of thetrans-Alaska oil pipeline, which has beencarrying North Slope oil since produc-tion began in 1977.

NEAR MILEPOST 7. The gas pipelinewould have exited the main oil-develop-ment area by now and would run rough-ly parallel to the oil pipeline and DaltonHighway for approximately 400 miles.

ROUGHLY MILEPOST 7 TO MILEPOST 65.Alaska is considered to have 32 ecore-gions across the vast state. Alaska LNGand its pipeline would traverse nine ofthem.

For the northernmost 60 miles or so— at Prudhoe Bay and immediatelysouth — the pipeline would be in what iscalled the Beaufort Coastal Plain. Thisarea is generally like the land the PointThomson line would span: flat, wet andtreeless, thus windy. Ice-rich organic siltoverlays coarse sands and gravels, whichin turn overlay permafrost. Sedges,grasses and mosses tend to dominate thevegetation woven into this soggy soil.

As the elevation slowly rises towardthe Brooks Range to the south, the soil

drains better. Dwarf shrubs can be found,typically no taller than soda bottles.

The pipeline would weave along thebetter ground through this terrain to min-imize its footprint in wetlands. As withthe Point Thomson pipeline and much ofthe entire pipeline, construction wouldoccur here in winter when the ground isfrozen. A special federal Clean Water Actpermit is needed to discharge dredged orfill materials into wetlands. The projectsponsors as of early 2015 were studyingwhether to elevate the pipeline aboveground for the first 60 miles or so ratherthan burying it.

NEAR MILEPOST 20. The pipelinewould come up close to the DaltonHighway for the first time. TheSagavanirktok River, the major drainagein the area, lies just east of the road.

NEAR MILEPOST 35. Across the SagRiver to the east are the iron-tingedFranklin Bluffs, a visual departure fromthe Arctic plain’s typical flatness and aforeshadower of the Brooks Rangeahead.

The bluffs aren’t the only contourrelief here, however. To the west, apingo called “Berry” is visible. Pingosare mounds of earth-covered ice. Someare quite large, looming hundreds of feetabove the tundra. With their relativelygood drainage, they tend to providebotanical contrast to the wet, flat sur-rounding tundra, especially on theirsouth-facing slopes.

Besides members of constructioncrews, caribou would be the most likelylarge mammals encountered in thisvicinity. If a grazing caribou bull sud-denly darts across the tundra, the likelyreason is warble flies. They don’t bite orsting, but they can lay eggs that cangrow into large grubs under the caribouskin.

A rare brown bear or wolf siting alsocould occur. Small mammals are present— shrews, voles and arctic ground squir-rels.

The wetlands also provide seasonalhabitat for migratory birds from aroundthe world. The area is a hotspot for bird-watchers, as migratory birds nest andbreed on the Arctic coastal plain, includ-ing King eiders, spectacled eiders, geeseand loons. Rock and willow ptarmiganare widespread here, too.

NEAR MILEPOST 65. The pipelinewould pass near Pump Station 2. Thisstation was built for the oil pipeline,although it’s no longer used. As com-pressor stations help propel pipeline gas,pump stations keep pipeline oil moving.

The initial gas pipeline corridor veerswest of the oil pipeline and DaltonHighway for about 20 miles near PumpStation 2.

Nonetheless, Pump Station 2 is sym-bolic of what lies ahead: the BrooksRange, the first of two major mountainranges the gas pipeline would surmount.Owners of the oil pipeline built threepump stations to help the oil get up andover the steep Brooks. Two are still usedtoday.

Editor’s note: This is a reprint fromthe Office of the Federal Coordinator,Alaska Natural Gas TransportationProjects, online at www.arcticgas.gov/if-you-could-tour-pipeline-route. The Officeof the Federal Coordinator closedMarch 7. Until further notice, this web-site is preserved for research and infor-mational purposes by the U.S. ArcticResearch Commission and is adminis-tered by the Alaska Resources Libraryand Information Services at theUniversity of Alaska Anchorage.

Additional portions of this story willrun in subsequent issues of PetroleumNews.

16 PETROLEUM NEWS • WEEK OF JULY 19, 2015

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But Notley has promised to releasean updated version of the province’senvironmental policy later this year.

‘Pause in activity’While the Canadian governments

grapple with making a breakthrough ona national energy strategy, an idea thatwas first advanced in 2012 by formerAlberta premier Alison Redford,Ramsay is also coming to terms withwhat he describes as a “pause in activityby some folks” in the NWT.

For now, all of the major explorationinitiatives are on hold — C$635 millionin work commitments by Husky Energyand ConocoPhillips Canada in theCentral Mackenzie Valley; C$1.18 bil-lion by BP and C$585 million byImperial Oil and ExxonMobil who haveformed a joint venture in the BeaufortSea; and C$103 million by ChevronCanada in the Beaufort.

Those decisions are “straight up eco-nomics,” Ramsay said.

“Hopefully before oil pricesrebound, we (the NWT) will have an oiland gas strategy that we’re in the midstof preparing and that should be out this

summer,” he said. “We’re not waiting tosee what happens or waiting for oilprices to come back. We want a gameplan for developing our resources in ameaningful and sustainable fashion.

“These things are cyclical and ourhope is that we will be back in theCentral Mackenzie Valley sooner ratherthan later,” while the NWT governmentbelieves the Beaufort hopes will also berevived, Ramsay said.

The lull gives the NWT time to “putkey investments in place” for all-seasonroads from Inuvik and Tuktoyaktuk andalong the Mackenzie River Valley, hesaid.

As well, the timeout gives regulatorsand the industry a chance to reach anagreement on rules for handling any oilspills in the Beaufort and for companies— with Norway’s Statoil rated as acontender — a chance to explore part-nerships, Ramsay said. l

continued from page 10

PIPELINE APPROVALS

Barack Obama will decide whetherto issue a permit.

A TransCanada spokesman saidthere have been no changes to theexisting Keystone link from Albertato the U.S. Gulf Coast, but techno-logical changes have allowed thecompany to expand capacity fromthe current 590,000 bpd.

He said that contracting extra vol-umes have been possible because of“technological advancements” thathave resulted in operating efficien-cies.

A deadline of Sept. 12 has beenset for shippers to submit bids forthe extra space.

About 90 percent of capacity onthe pipeline is reserved for commit-ted shippers, with the remainderavailable for spot volumes.

—GARY PARK

continued from page 15

OPEN SEASON

As well, the timeout givesregulators and the industry achance to reach an agreementon rules for handling any oil

spills in the Beaufort...

tioning process as well as potential fac-tors not under the registrant’s control,there is, from an accounting perspective,substantial doubt about its ability to con-tinue as a going concern. Because of thesecircumstances, the registrant is undertak-ing an asset impairment analysis on cer-tain of its assets,” Miller said, additionalwork which has delayed completion of itsincome tax provision and year-end finan-cial statements.

Conference call July 29Miller said it would host a conference

call and webcast July 29, and at that timeprovide a comprehensive shareholderupdate including the status of its capitalrepositioning process.

“Management remains confident thatthe Company’s opportunities going-for-ward will enable it to overcome any cur-rent financial difficulties and intends todisclose appropriate details of theCompany’s future plans” in the confer-ence call, Miller said in its July 14 pressrelease.

No bankruptcy filingIn its July 15 press release the compa-

ny said it “believes its assets have valuethat exceeds its debt and continue to offersignificant opportunities for growth,”and said it “does not intend, under cur-rent circumstances, to file for bankrupt-cy. Accounting convention requires that,under certain circumstances, publiclyreporting companies must inform theirinvestors that there may be substantialdoubt about their ability to continue as agoing concern,” and under that conven-tion, Miller said, it made such a state-ment.

The company said it “believes these

current circumstances will be ameliorat-ed with the successful completion of itscapital repositioning process,” and said ithas “received and is considering multipleproposals made by various potentialcounterparties.”

Miller said it signed a non-binding let-ter of intent with a private financingsource July 10, and if that loan is closedit “will substantially refinance MillerEnergy’s existing indebtedness.”

It said it has also received and is eval-uating “several proposals that wouldcomplement such a primary refinancing,”including a proposal to purchase certainnon-core assets which would providepotential infrastructure financing mademake a minority equity investment in thecompany.

State tax creditsMiller said it received a state of

Alaska tax credit certificate June 12 forsome $33 million, has received some$9.3 million of that in cash and expects toreceive the remainder in the next fewweeks.

In March and April the company said,it applied for an additional approximately$9.4 million in state tax credits andexpects to receive those funds in the nextfew months, with the intention to use thatcash to pay down its first-lien lenders,manage its accounts payable and investin growing its production.

Miller said management has reducedcombined operating and G&A costs bysome $9 million on an annualized basisand reduced capex incurred to less than$7 million in the last quarter.

Miller has production in Cook Inletand on the North Slope at Badami.

—KRISTEN NELSON

18 PETROLEUM NEWS • WEEK OF JULY 19, 2015

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drilling season, Baldino said, as theFennica is not expected to be requireduntil August.

Shell is planning to begin work in theChukchi Sea in the weeks ahead and iswaiting for two final permits, permits todrill, from the Bureau of Safety andEnvironmental Enforcement.

NOAA finds obstructionThe National Oceanic and

Atmospheric Administration said July 13that the NOAA ship Fairweather, inDutch Harbor for a scheduled port call,did a survey at the request of the AlaskaMarine Pilots following the July 3 inci-dent where the MSV Fennica, a Finnishmultipurpose icebreaker, reported strik-ing an obstruction in the vicinity of acharted shoal between Hog Island andAmaknak Island near Dutch Harbor.

NOAA said preliminary data collectedby the Fairweather show rocky areasshallower than 30 feet, one as shallow as22.5 feet, which were not detected by thelast survey of the area, conducted in1935.

NOAA said it would issue a “chartlet”or small area map providing a prelimi-nary image and said that chartlet shouldbe available in 10 to 14 days.

The agency said that less than 1 per-cent of U.S. Arctic waters have been sur-veyed with modern survey methods andin anticipation of growing vessel traffic inthe Arctic, NOAA has the ships Rainierand Fairweather conducting a summer of

continued from page 1

MILLER FINANCIALS

continued from page 1

SHELL FLEET

see SHELL FLEET page 21

Petroleum News: OK, let’s talk aboutthe pipeline construction days. What doyou remember about those days?

Guttenberg: I remember a lot of things.One of the things I remember is the loss ofopportunity. I won’t get into the tariffaspects of it which was kind of on theback horizon. Back then Alaskans didn’thave the opportunity to take advantage ofthe jobs. When the pipeline was done andthe career jobs on the pump stations werein place and that people retired off of andhad an opportunity to work for 20 or 30years, we weren’t trained.

We weren’t in place to have those jobs.We had maintenance and contracts likethat. If you looked over the pump stations,the operators and engineers, a lot of thosepeople move to Alaska for the jobs. Theywere two (weeks) on and one off, or amonth on and a month off. It just seems tome that we were not trained. We were notin a position to say those jobs are ours.

It’s the same thing in Prudhoe, not justthe pump stations. Those are the goodjobs. The construction jobs were seasonal,then they go away. It should be Alaskanswho are in position to take those 30 yearjobs, those career jobs. I worked seasonal,when the construction jobs that were inplace.

But the long-term jobs in the facilitiesand the major maintenance contracts werewhere people needed to be, and we needto make sure if something happens again,that Alaskans are in place to take thosejobs.

Petroleum News: The population wasvastly different than it was now. Don’t youthink the state would have more qualifiedworkers?

Guttenberg: I was here pre-pipeline. Ididn’t know anything about it. I got herein 1969. Things were starting to happen. Itwasn’t on my horizon. We were naïve. Wewere young. We were innocent. Weweren’t players in the world of oil. Iremember the state rolling out without thestate knowing what was in the best interestof the state. Now hopefully we are betterinformed and we will be prepared and wewill have generations of our children retir-ing off of those jobs.

Lots of people come to Alaska and do agreat job, but now we have to think aboutwho is here, what do we have to trainthem with? Is the university turning outscientists, engineers and biologists? We’llhave a couple of years to get that done.Not everything requires a four-yeardegree, a masters or a Ph.D. A lot of thoseguys have technical training on the Slope.

We need to be more aware of it andparticipate with the industry. We need toget hard numbers from industry. Howmany people are you going to need inthese facilities? How many engineers?How many operators? And make sure wehave the opportunity to get qualified peo-ple in those places. If we don’t we’ll bedoing what’s done all too often and that’srepeating our mistakes.

Petroleum News: I’m not asking you tospeak for respective committee chairs, butdo you see the Labor and Commerce com-mittees having bigger roles as the projectadvances? Normally, it’s just Resourcesand Finance.

Guttenberg: Well, as far as some of thatstuff goes, the Finance sub committees dorecommendations for training. The gather-ing of the information and the understand-ing should start out of those committees.The administration will put stuff out onthe table and the industry will put stuff onthe table, the committees will do their

research and ask questions, then go fromthere. It certainly needs to be a coordina-tion. The Finance Committee doesn’t havethe time — certainly in a 90-day session— to unpack all of those situations. Iwould hope the Labor and Commercetakes on some of that and asks what do weneed to do to prepare?

When things start rolling, first they areslow, then you know they are rolling, thenthings move fast. We will have little timeto make sure people are trained. The laborunions have the first sense of needs.People will be rolling in and we will beswamped with community impact issues.That is kind of the first thing that will hitthe table. Being prepared and having ourpeople in place is the second part.

Some of those engineers and facilitiespeople will need to be involved on theconstruction side to know where thingsare, to know what it looks like under-ground, to understand why things are theway they are, but not everybody. So we’llhave a little time.

Petroleum News: Looking ahead, whatwould you like to see the state accomplish,be it in a special session or otherwisebetween now and year’s end?

Guttenberg: Well, there are rumors thatwe will have a special session in Octoberon the AKLNG. The first thing is I hopewe have enough information so that wecan be boned up and educated on theissues before we get down there, so wedon’t just show up in Juneau and they rollit out, and we have to do full committeehearings people aren’t asking the mostbasic questions, that we have a processand understand what it is that’s going on,so it’s not just laid out on the table, here itis take it or leave it.

That’s the way I felt the Parnell processwas with the two components on theagreement he signed with the industry. Ithought they were take it or leave it.Clearly some of it was way too confiden-tial. I wouldn’t sign those confidentialityagreements because I’m a public officialand I have to answer public questions. I’mconcerned about that.

But at least give us a few weeks tounderstand the documents so we can havesome preliminary hearings and briefings.That’s coming up fast. First of all, we lost54 days in the spring stuck in a specialsession that accomplished something forme but not some other people. It’s comingup fast. It’s amazing how fast it happens.

But I don’t want to go to a special ses-

sion without something hard on the table.If we don’t have something to do onOctober, then just start a special sessionJan. 3 that goes to the beginning of regularsession instead of going down withoutsomething on the table. I don’t want to gofor it to be a show. I don’t think the gover-nor wants to, either — nor anybody else.

Petroleum News: When you do return,it looks like the Legislature may be exam-ining the value of the tax credits. I knowyou addressed that last week. Is this some-thing that should be reviewed?

Guttenberg: Oh yeah. Whether I agreeor disagree with the tax regime on thetable, I think it’s entirely appropriate toexamine what it’s doing every couple ofyears. What’s changed with the economicsituation? What can we do to enhancedevelopment? Should we do credits this

way? Should we change the way we docredits? I just think it’s appropriate for usto examine what’s going on and alsoexamine what we left on the table. I thinkit’s an appropriate time now to do just thatnow.

Petroleum News: So it’s not that you’reagainst the tax credits. It’s just somethingelse you want to look into under the big-ger heading of the budget?

Guttenberg: We need to ask ourselvesare we getting what we are paying for.There are a couple things we are payingfor that we are not getting. We talkedabout what should we do different than thelast time. I talked about jobs and beingready. With the tax credits and the thingswe are giving money to do, I think we

PETROLEUM NEWS • WEEK OF JULY 19, 2015 19

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GUTTENBERG Q&A

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Lynden Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Lynden International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Lynden Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Lynden Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

MagTec Alaska

Mapmakers of Alaska

MAPPA Testlab

Maritime Helicopters

Miller Energy

Motion Industries

N-PNabors Alaska Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Nalco

NANA WorleyParsons

NASCO Industries Inc.

Nature Conservancy, The

NEI Fluid Technology

NMS Lodging

Nordic Calista

North Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Northern Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Northern Electric Inc.

Opti Staffing Group

Pacific Alaska Lumber

Pacific Pile

PacWest Drilling Supply

Paramount Supply Company

Parker Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

PENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Petroleum Equipment & Services

Polyguard Products

PND Engineers Inc.

PRA (Petrotechnical Resources of Alaska)

ProComm Alaska

Price Gregory International . . . . . . . . . . . . . . . . . . . . . . . . .22

Resource Development Council

Ravn Alaska (formerly Era Alaska)

Q-ZSAExploration

SAFWAY

Sophie Station Suites

STEELFAB

Stoel Rives

Taiga Ventures

Tanks-A-Lot

The Local Pages

Think Office

Total Safety U.S. Inc.

TOTE-Totem Ocean Trailer Express . . . . . . . . . . . . . . . . . . . . .4

Totem Equipment & Supply

TTT Environmental

Turnagain Marine Construction . . . . . . . . . . . . . . . . . . . . . .15

UIC Design Plan Build

UIC Oil and Gas Support Services

Unique Machine

Univar USA

Usibelli

Verizon

Vigor Alaska

Volant Products

Weston Solutions, Inc.

Roth family announces passing of Richard W. RothRichard W. Roth, co-founder and past president and chairman of

Engineered Systems Inc., passed away on June 1. EngineeredSystems Inc. was founded in 1971 and became a leading supplierof semi-custom, computer-based control systems to the petroleumindustry. ESI delivered hundreds of systems to petroleum terminalsthroughout the United States and internationally. In 1991, ESIreceived the “President’s E Award” for international marketingfrom the Department of Commerce. Roth was a past member of anumber of business organizations, including the PetroleumEquipment Institute, Western Petroleum Marketers, the IndependentLiquid Terminals Association and other organizations, includingSCORE Business Consultants and Gideons International. He wasborn in Amarillo, Texas, in 1932 and earned a BSE degree in 1958 from Arizona StateUniversity. Married for 54 years, he is survived by two sons and four grandchildren.

Det-Tronics releases new line of gas detector The new FlexSight LS2000 line-of-sight infrared gas detector from Detector Electronics

Corp. is a next-generation solution for line-of-sight gas detection. Available immediately,

the FlexSight LS2000 sets a new standard for infraredline-of-sight gas detectors with improved optical field ofview, an advanced housing design, simplified mount andbreakthrough alignment tolerance. Det-Tronics, the globalleader in products and services for total fire and gassafety solutions, is a part of UTC Building & IndustrialSystems, a unit of United Technologies Corp. (NYSE: UTX).

Line-of-sight infrared gas detectors continuously mon-itor combustible gas levels between two points at arange of more than 100 meters. The FlexSight LS2000 isdesigned to address installation, maintenance and per-formance challenges of current line-of-sight solutions.

“After years in research and development and exten-sive testing and gaining third-party product approvals, we are confident that the FlexSightLS2000 will go beyond our customers’ expectations,” said Randall Ruegg, president ofspecialty detection, UTC Building & Industrial Systems. “From a foggy North Sea oil plat-form in constant motion to placements next to highly used railways or in the harsh condi-tions in the Arctic, the FlexSight LS2000 is designed to fully meet these real-life operatingconditions.” For more information, visit www.det-tronics.com.

RICHARD W. ROTH

see OIL PATCH BITS page 21

don’t get anything back for them. There are things we should be getting

besides increased production. I think thestate doesn’t get enough informationabout what’s at the bottom of the well. Ithink that’s a credible question. Whereshould we be developing? The wholepicture of what’s inside Prudhoe Bayand what’s at the bottom of those wells,I don’t think we have. How does thestate manage its resources if we don’tknow what’s down there? They peoplewe are paying hundreds of millions ofdollars of credits are not giving us backthe information. The state has an obliga-tion. We should be asking for that whenwe give credits.

Petroleum News: A little farthernorth, Shell is hoping to still do somedrilling this summer. What are yourthoughts on Shell returning to theArctic?

Guttenberg: My personal opinion isthat Shell is looking to divest itself of itsArctic enterprises. They made anannouncement in a big press release ear-lier this year how they reconfigured,what they considered their mission andwhere they are going to put theirresources and their time, and this wasnot mentioned. I think they are just fol-lowing through their construction com-mitments to the feds and to the state inorder not to devalue their product andthey are, in my opinion, they are goingto sell them. According to what they saiddrilling in the Arctic did not fit in theirplan any longer. I don’t know if they aregoing to be able to but that’s what Ithink it’s about.

Petroleum News: A few months agoShell had its rigs in a Seattle port whichnaturally drew opposition from environ-mentalists, but it also caught the atten-tion of city and state leaders, includingthe governor (Jay Inslee). What wereyour thoughts on the pushback? Werethey meddling in Alaska’s business orprotecting their own interests?

Guttenberg: OK, there are a couple ofthings involved in that. I gave a floorspeech on the resolution on that. Wedon’t own the Arctic. That belongs to theUnited States. We are just the ones clos-est to it. Sometimes when Alaskansprotest about people’s concerns overwhat happens here, you know we are cit-izens of the United States.

Everyone has a right to have a voice.The state, I think, has to take care of itsbusiness with oil and gas developmentso some of that (resolutions) is justified.

I thought it was funny because Shellhad the problem (with the Kulluk) andtold us they would risk everything for acouple million dollars in taxes by doingthings that were not safe.

They ended up putting their drill rig onthe rocks. They already told us they don’twant to be here. They don’t want to useour ports; they don’t want to leave shipshere; they don’t have headquarters here;they don’t want to have staging areashere. So why are we standing up forthem? We can support drilling in theArctic when we are ready — when weactually have things in place. I think someof the concerns people have had, they arejustified. Shell has not lived up to thestrongest commitment they should havein being ready and being prepared. l

PETROLEUM NEWS • WEEK OF JULY 19, 2015 21

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Polyguard introduces addition to its product linePolyguard Products’ mechanical division announced the release of its newest product,

Alumaguard Lite White, to its family of flexible cladding membranes. Alumaguard Lite White is a peel-and-stick membrane primarily designed to be used

indoors for mechanical rooms, food production areas or other indoor applications wherea glossy white appearance is desired, and outdoors to weather-proof exterior insulatedductwork, piping or other insulated tanks, vessels and equipment. It can also be usedindoors on pipe systems and ductwork where a true zero perm vapor barrier is preferred.The easy-to-apply membrane meets ASTM 84 25/50 smoke and flame requirements. Foroutdoor application, it provides enhanced resistance to a broad range of chemical expo-sures and can be applied in temperatures as low as 10 degrees F.

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continued from page 20

OIL PATCH BITS

continued from page 19

GUTTENBERG Q&A

hydrographic surveying projects alongthe western coast of Alaska, includingKotzebue Sound, Port Clarence and PortHope.

NOAA also said it has a joint effortunder way with the U.S. Coast Guard cut-ter Healy to collect reconnaissancebathymetry along the main shippingroute from the Aleutians up through theBering Strait.

Safety zone for Polar PioneerThe Coast Guard said July 14 in a

Federal Register notice that it is estab-lishing a 500 meter safety zone aroundthe Polar Pioneer, one of Shell’s two drillrigs, which will be in effect when thatdrilling unit is on location to drillChukchi Sea exploratory wells on theAlaska outer continental shelf. The safetyzone is in effect from July through Oct.31.

“The purpose of the temporary safetyzone is to protect the drillship from ves-sels operating outside the normal ship-ping channels and fairways,” the CoastGuard said.

The safety zone will significantlyreduce the risk of allision, a moving shiprunning into a ship that is stationary. TheCoast Guard said allision “could result inoil spills and releases of natural gas,”producing a threat to the safety of life,property and the environment.

“Lawful demonstrations may be con-ducted outside of the safety zone,” theCoast Guard said.

—KRISTEN NELSON

continued from page 18

SHELL FLEET

more easily utilize existing facilities todevelop reserves discovered in theexpansion regions, according to the com-pany. The precise amounts of the poten-tial reserves have been kept confidentialby the state.

“The reserves discovered thus far inthe Expansion Area are not large enoughto support the costs of full processingfacilities. Even if stand-alone develop-ment were economic, there would be eco-nomic waste due to the existence ofduplicate facilities and services,” thecompany wrote in its application, whichwas recently released for public com-ment.

The Division of Oil and Gas is takingcomments on the plan through Aug. 10.

The proposed expansions correlatewith much of the recent activity at theunit.

The proposed expansion of theKuparuk participating area would includetwo blocks — one associated with DrillSite 2S and Drill Site 2M and the expan-sion lease in the south.

The company is currently developingDrill Site 2S in the southwest corner ofthe unit, with plans to start production bythe end of the year. DS-2S will be thefirst new drill site at the unit since 2003.Drill Site 2M, to the north, has seen somedrilling in recent years.

The unit expansion at ADL 392364would incorporate a lease in the vicinityof Drill Site 2E, Drill Site 2F and DrillSite 2G, where ConocoPhillips has beenfocusing a noticeable portion of its devel-opment drilling budget at Kuparuk in2014 and for this coming year.

Altogether, ConocoPhillips said it hasdrilled five wells into the expansionacreage in recent years. Those includewells 2E-01, 2F-21, 2F-22, 2G-17 and2M-36. All five of those wells encounterhydrocarbons in paying quantities,according to the company.

The expansion associated with DrillSite 2S would incorporate portions ofADL 25590, ADL 25603, ADL 355608,ADL 380053 and ADL 380051 to the par-ticipating area. The Drill Site 2M expan-sion would add portions of ADL 390503,ADL 25565 and ADL 25590. The south-ern expansion would add ADL 39264,ADL 25668 and ADL 25605.

The proposed expansion of the WestSak participating area would include ablock near Drill Site 1H, whereConocoPhillips is in the early stages of a$450 million expansion program project-ed to come online in 2017 and produce8,000 barrels per day at its peak. Theexpansion would add portions of ADL47449, ADL 25638, ADL 25637, ADL25636, ADL 25639, ADL 28242, ADL25649 and ADL 28243 to the participat-ing area.

ConocoPhillips has drilled two recentwells in the proposed West Sak expan-sion area: 1C-150 and 1C-151. Bothencountered commercial hydrocarbons,the company said. l

22 PETROLEUM NEWS • WEEK OF JULY 19, 2015

ENERGY INFRASTRUCTURE CONSTRUCTION SERVICES

continued from page 1

KRU EXPANSION

Altogether, ConocoPhillips said ithas drilled five wells into the

expansion acreage in recent years.Those include wells 2E-01, 2F-21,2F-22, 2G-17 and 2M-36. All five

of those wells encounterhydrocarbons in paying quantities,

according to the company.

pressure, in expectation that the lowerpressure would limit or eliminate thefluid loss. The new pressure regimeappears to have cured the leakage prob-lem, albeit with a drop in field productionrates. The company says that its proposednew drilling program would improve pro-duction while also help to ensure that thefluid leakage does not restart.

Compartmented reservoir The Meltwater field lies within the

Kuparuk River unit, to the south of theKuparuk River field. Meltwater, whichwas discovered in 2000 and went intoproduction in 2001, using the Kuparuk oilproduction facilities, has its oil pool in theBermuda sandstone within the Torok for-mation, a part of the Brookian sequence,the youngest of the petroleum bearingrock sequences on the North Slope. Thesediments that form the Bermuda intervalwere laid down as what geologists refer toas “turbidites,” a series of sand bodiesdeposited from rapid and short-lived sed-iment flows down the side of an ancientmarine basin. Given this mode of deposi-tion, and the way in which the sands tend-ed to fill channels in the basin side, thesands tend to form disconnected layersand lobes, rather than occupying a contin-uous sand layer.

Initially, to boost Meltwater produc-tion, ConocoPhillips alternated waterinjection with the injection of miscibleinjectant, a mixture of natural gas andnatural gas liquids used to flush oil fromthe subsurface rocks. But after the field’swater injection pipeline went out of serv-ice in 2009 because of corrosion, the oilrecovery strategy changed to the use ofjust miscible injectant. Then, in 2014ConocoPhillips switched to the use of justnatural gas.

Injectant leakageThe original version of the injection

order that ConocoPhillips now wantsamended was issued by the commissionin August 2001, a few months before theMeltwater field went into initial produc-tion, Thomas Nenahlo, ConocoPhillipsdevelopment engineer for the Meltwaterfield, told the commission during the July9 hearing. Shortly after the start of theinjection of miscible injectant, traces ofinjected material were found in the outerannuli of three wells, providing initialevidence for miscible injectant leakage.Apparently material balance calculationsfor the field have confirmed that leakagewas occurring. A subsequent investiga-tion led to various theories for the leakageand to a number of tests to try to prove acause. And, starting in 2003,ConocoPhillips implemented measures tohandle the leaks, including the installa-tion of pressure monitoring equipment,monthly monitoring of well outer annulusfluids and special training for field opera-tors, Nenahlo said.

Robert Wentz, staff geologist withConocoPhillips, commented on the inter-nal complexity of the Bermuda sandstonereservoir, with its discontinuous sandlobes. Those individual sand units withinthe overall sandstone interval are difficultto correlate between wells, he said. EricBressler, staff geophysicist withConocoPhillips, showed a depth structuremap and a seismic section that illustratedthe complexity of the sand-filled channelsand sand lobes. The isolation of individ-ual sand bodies in the interval resultsfrom the chaotic nature of deepwater tur-bidites, he said.

Production data from the field indi-cates poor fluid connectivity between

individual sand lobes, Bressler said.

Leak investigationWentz described a study of rocks

above the Meltwater reservoir thatConocoPhillips had conducted between2012 and 2015, to characterize these“overburden” rocks and better understandhow fluids may have leaked into the over-burden from the reservoir. The results ofthis study, somewhat hampered by ashortage of data about the rocks, turnedout to be inconclusive from a data analy-sis perspective. However, modeling sup-ported a view that the loss of fluids fromreservoir resulted from a large pressuredifferential between injection and produc-tion wells, prior to the impositions of apressure limit, he said. That high differen-tial can be attributed to the poor fluid con-nectivity between wells.

A 4-D seismic analysis — essentially acomparison between two 3-D surveysdone at different times — revealed linearfeatures in which the gas saturation orpressure in the reservoir had changed,Bressler said. Further analysis of the datashowed that these features must resultfrom rock fractures as well as from gasbehavior, he said. It seems that, under theimpact of high pressure differentials, flu-ids leaked by migrating upward throughfractures in the overburden, Nenahlo said.

Reduced pressureNenahlo said that ConocoPhillips

implemented two initiatives to containthe loss of fluids. First, to reduce theobserved high pressure differentialbetween injection and production wells,the company imposed a pressure limit of3,400 pounds per square inch at the inter-face between the base of the injectorwells and the surrounding sand, with sev-eral surveillance programs put in place tomonitor the effectiveness of the pressurelimit, he said. Second, the companyimplemented a fluid containment assur-ance program.

In May 2013 AOGCC issued a revisedversion of the area injection order for theMeltwater oil pool, Nenahlo said.

More drillingNow, based on ConocoPhillips’ expe-

rience of operating the Meltwater field,and with the surveillance programs show-ing no further fluid leaks since the pres-sure limit was applied, the companywants to further amend the injection orderfor the field, allowing coiled tubing side-

track drilling and conversions of someproduction wells to injectors to furtherreduce the risk of the loss of injected flu-ids, while also optimizing ultimate hydro-carbon recovery from the field, Nenahlosaid. Essentially, the program wouldplace injectors and corresponding pro-ducers in the same sand bodies within thereservoir, rather than straddling sandbody boundaries, thus enabling higherproduction rates without raising the injec-tion pressure to levels where fluid leakagewould restart.

Coiled tubing drilling involves drillingout from the side of an existing well boreusing a continuous length of small-diam-eter, flexible pipe.

Currently the Meltwater field has 13production wells and six injection wells,Nenahlo said. He said that some of the

producers and injectors are not in opti-mum locations in relation to the disposi-tion of the various sand bodies, especiallyin the southwestern portion of the reser-voir. In response to a question fromCommissioner Dan Seamount, Nenahlocommented that improved access to onepart of the field might require the drillingof a new well from the surface, ratherthan a sidetracked well.

Asked by Commission Chair CathyFoerster about the feasibility of usinghydraulic fracturing to improve fluidcommunications between injectors andproducers, as an alternative to the drillingprogram that ConocoPhillips proposes,Nenahlo said that the distances betweenthe wells in the reservoir is too great for

continued from page 1

MELTWATER DRILLING

PETROLEUM NEWS • WEEK OF JULY 19, 2015 23

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24 PETROLEUM NEWS • WEEK OF JULY 19, 2015

Prosperity Fund and that British Columbia would end updebt free.

Finance Minister Mike de Jong said he was lookingforward to jumpstarting a “whole new industry and awhole new era of opportunity for B.C.,” suggesting theopposition New Democratic Party was “twisted up inknots over this one.”

He said the legislation is the last piece of a puzzle thegovernment has been assembling over many years toattract LNG investment in British Columbia.

Liberals have the votesNDP leader John Horgan said his caucus “will be

opposing this bill” because of its flaws, while, in the samebreath, declaring “we do not under any circumstancesoppose development of this (natural gas) resource.”

“We want to make sure we do it in a way that benefitsall British Columbians and not just meeting a politicalpromise that was made during (the 2013) election cam-paign,” he said.

But the simple reality is that Clark’s Liberal Party gov-ernment has an overwhelming majority and will pass thebill. The only question is whether the NDP will be able tosqueeze a few minor changes out of the government.

De Jong has made it clear he will not accept meddlingwith a bill that provides Petronas and its partners withassurances that cover 25 years and promises compensa-

tion of C$25 million a year or more if any future govern-ments: Raise income taxes for LNG operations; adoptcarbon taxes that specifically target the industry; reducenatural gas tax credits; and make changes to rules ongreenhouse gas emissions that financially affect theindustry.

Concerns about 25 years, jobsReferring to the terms of the agreement, Horgan said:

“A 25-year deal? Who does that? Who does that in the21st Century?”

He also attacked the Clark government for failing tosecure job guarantees, protect the environmental or get afair return for British Columbians.

Horgan said the bill handcuffs future governments bygranting a “25-year tax holiday to a foreign company”that will rely heavily on temporary foreign workers dur-ing the construction phase.

“There should be local-hire provisions,” he said.“There should be local-procurement provisions. IfAustralia can negotiate these arrangements, why can’tB.C.?”

Horgan said the constraints in the legislation are “justunconscionable and we won’t support it.”

Clark: BC first, then CanadaClark announced C$75 million has been allocated to

trades training and promised that British Columbianswould be first in line for a projected 4,500 constructionjobs at Pacific NorthWest.

“My view — and I’ve expressed this to all proponentsis ‘British Columbia first (for jobs), Canada second andthen start looking in the United States and other placesaround the world for temporary employees,” she said.

Pacific NorthWest President Michael Culbert said thatin addition to construction jobs — an average 62 percentof which the consortium has estimated will go toCanadians — up to 330 long-term careers will be createdto operate the project, along with 300 spinoff jobs to localcommunities.

Culbert said that to meet its job commitments, PacificNorthWest is “working with a number of associations,educational providers and working groups to help preparethe British Columbia workforce for upcoming job oppor-tunities.”

He also noted that Progress Energy, owned outright byPetronas, is already a major employer in the gas fields ofnortheastern British Columbia that will provide the bulkof feedstock for the project.

De Jong forecast that Pacific NorthWest will generatenearly C$9 billion in taxes and royalties by 2030. l

continued from page 1

LNG POSITIONS

the hydraulic fracturing approach.

Other requestsConocoPhillips is also requesting per-

mission to inject some seawater or oil-field produced water into the Meltwaterreservoir for use in surveillance and wellmaintenance operations. An earlier ver-sion of the reservoir’s injection order hadallowed the injection of similar water forimproved oil recovery, Nenahlo com-mented. The company is also asking thatthe reporting frequency for the field bechanged from monthly to annual, anarrangement that the company sayswould continue to ensure the continuedregular transmission to AOGCC of infor-mation about development and contain-ment issues. And, with the leakage of flu-ids from the field stopped and optimumhydrocarbon recovery achieved,ConocoPhillips is asking that the termi-nation date be removed from the injec-tion order, Nenahlo said.

Foerster said that, in recognition of thechanging circumstances that tend to sur-round oil fields, the commission is con-sidering mandating a termination date forall area injection orders, an arrangementthat would presumably apply toMeltwater should the commission decideon this new rule. l

continued from page 23

MELTWATER DRILLING

“My view — and I’ve expressed this to allproponents is ‘British Columbia first (for jobs),

Canada second and then start looking in theUnited States and other places around the

world for temporary employees.” —B.C. Premier Christy Clark