Q&A: Guttenberg says tax system isunstable, hasn’t been well crafted

page5

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

l G O V E R N M E N T

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

Vol. 21, No. 18 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 1, 2016 • $2.50

page10

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of May 1, 2016

Skeena posts maiden resource for Spectrum with 2015 assays

NEWS NUGGETSCompiled by Shane Lasley

BLM enters final stage of EAfor exploration road at Palmer

The U.S. Bureau of Land Management April 26 opened a30-day public review and comment period on environmentalanalysis of Constantine Metal Resources Ltd.’s proposed planof operations to expand exploration at its Palmer project locatedon federal mining claims near Haines, Alaska. The plan, sub-mitted by Constantine last June, proposes up to 2.5 miles ofadditional road construction that would provide access to up to40 new drill sites on the Southeast Alaska property. The drill

CO

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Constantine Metal Resources has applied for permits to build aroad that would provide safer, less expensive and more reliableexploration of the Glacier Creek deposit at its Palmer project nearHaines, Alaska.

see NEWS NUGGETS page 12

l P U B L I C P O L I C Y

Breaking gridlockMurkowski pushes energy bill with mining perks toward President’s desk

By SHANE LASLEYMining News

During an era of partisan gridlock on CapitolHill, U.S. Sen. Lisa Murkowski, R-Alaska,

has managed to garner broad support for an energybill aimed at modernizing the way power is pro-duced in the United States, including numerousprovisions important to

Alaska. The legislation,

which was passed out of the

U.S. Senate with an 85-12

vote, also contains provisions

to improve access to the U.S.

mineral resources supply by

streamlining the minerals

mine permitting process.

“My top priority as chair-

man is to deliver for Alaska –

and I worked hard to add

dozens of our state’s priorities

for energy, mineral, and lands

policy into my broad, biparti-

san bill,” Murkowski, chair of

the Senate Natural Resources

Committee, explained.

For the mining sector,

Murkowski’s legislation, S.

2012, addresses key bottle-

necks in the United States’

minerals supply chain by establishing timelines forcritical mineral projects and making the mine per-mitting process more efficient.

“The ‘Energy Modernization Policy Act of2016,’ passed by the Senate today, includes much-needed improvements in the nation’s permittingsystems for metal and mineral mines to better posi-tion our country to achieve a truly all-of-the-aboveenergy portfolio,” said National MiningAssociation President and CEO Hal Quinn.“Simply put, mineral security is a critical element

to U.S. energy systems and Sen. Murkowski’s billpromotes better access to the raw materials thatmake it all possible.”

Bipartisan billCo-authored by U. S. Sen. Maria Cantwell, D-

Wash., the ranking Democrat on the NaturalResources Committee, S. 2012 is touted as the first

comprehensive energy bill to

pass out of the Senate since

before President Obama took

office.

Over the ensuing nine

years, technological advances

have driven sweeping

changes to how energy is pro-

duced, stored, transmitted and

used in the United States.

“There’s so much changegoing on in the energy sector now, we need to havean energy bill every year,” said Sen. Cantwell.

“This bipartisan bill is an important next stepfor saving consumers money on energy costs, pro-viding more options to power U.S. homes andbusinesses, and preparing the next generation ofworkers for jobs in clean energy,” she added.

To craft energy legislation that is palatable toRepublicans and Democrats alike, Murkowski andCantwell avoided partisan pitfalls and includedprovisions that are important to lawmakers on bothsides of the aisle.

S. 2012 includes provisions that support furtherdevelopment of mineral, oil and gas resources aswell as renewable resources such as wind andsolar.

As a result, the Energy Policy ModernizationAct of 2016 garnered support from trade organiza-tions such as the National Mining Association,Alaska Oil and Gas Association and American

see BREAKING GRIDLOCK page 10

SEN. LISA MURKOWSKI HAL QUINN

SEN. MARIA CANTWELL

SHA

NE

LASL

EY

This week’s Mining News

Sen. Lisa Murkowski pushes energy bill with mining perks towardPresident Obama’s desk. Read more in Mining News, page 9.

Celebrating 20 years: 1996-2016

Point Thomson onlineExxonMobil starts condensate production at most easterly North Slope field

By KRISTEN NELSONPetroleum News

ExxonMobil said April 22 that it has begun pro-

duction at Point Thomson. In addition to

being the first ExxonMobil-operated field on

Alaska’s North Slope, Point Thomson is also the

most easterly production on the Slope. Production

from that field is a long-awaited culmination of a

process which began with initial leasing in 1965,

progressed through exploration drilling and then

through a long struggle with the state over devel-

opment at the high-pressure condensate field.

Point Thomson production is natural gas con-

densate, with the liquid extracted from the natural

gas, which is then reinjected into the high-pressure

reservoir to maintain pressure and for future natu-

ral gas production.

Central pad facilities at the field are designed to

initially produce some 5,000 barrels per day of

condensate and 100 million cubic feet per day of

recycled gas, ExxonMobil said. At full production,

anticipated when the west pad comes online in a

few months, the facility will produce some 10,000

bpd of condensate and 200 million cubic feet of

A major CD5 expansionConocoPhillips to increase the NPR-A development from 15 to 33 wells

By ALAN BAILEYPetroleum News

ConocoPhillips is going to expand its CD5

development in the northeast corner of the

National Petroleum Reserve-Alaska from 15 wells

to 33 wells, Nick Olds, ConocoPhillips vice presi-

dent of North Slope operations and development,

announced during a Resource Development

Council meeting on April 21. Olds said that the

company has approved funding for a $190 million

expansion project.

“We’ve got internal approval and co-owner

approval to fund an additional 18 wells and the

(associated) infrastructure on the pad,” Olds said.

“Based on the well results that we’re seeing from

the first 10 wells we’re going to full design capacity

of 33 wells and we’re moving ahead.”

The development will not require any expansion

to the existing gravel pad at CD5 but will require

the installation of some additional the pipe racks.

The pipe racks will be fabricated in Alaska this year

for installation during the ice-road season next win-

ter. First oil from the expanded development is

expected in the third quarter of 2017, Olds said.

Cleaning up CanadaTrudeau government wants climate-change plan this year; Saskatchewan resists

By GARY PARKFor Petroleum News

Canadian Prime Minister Justin Trudeau made

one of his now frequent jaunts to New York

in late April to participate in a United Nations’

signing of the global climate agreement — all part

of his eagerness to present Canada as a “champion

of clean energy.”

At the same time, the scope of his challenge

was unfolding back at home, with a new govern-

ment inventory report demonstrating the plodding

progress towards curbing greenhouse gas emis-

sions.

That set the stage for a faceoff between federal

Environment Minister Catherine McKenna and the

Saskatchewan government, which presents the

biggest obstacle to the Trudeau government’s

efforts to gain buy-in for its proposal to set a

national carbon price of C$30 per metric ton.

Although Canada accounts for only 1.6 percent

of global emissions, according to McKenna’s

see POINT THOMSON page 20

see CD5 EXPANSION page 19

see CLEANING UP page 18

The company said potential futuredevelopment is dependent on factors such

as business considerations, investmentclimate and fiscal and regulatory

environment.

Olds characterized the CD5 developmentas part of a “level-loaded sequential

development strategy” in NPR-A.

Emissions actually dropped in 2009 dueto the global economic downturn, but

have risen 5.2 percent since then, with theenergy sector — upstream and

downstream — making up 81 percent ofthe 2014 levels.

Furie is preparing for drillingFurie Operating Alaska’s jack-up drilling rig, the Randolf

Yost, is still in Kachemak Bay, being fitted out for this summer’s

drilling season. The rig should move out around May 5 for sta-

tioning at Furie’s Julius R. offshore gas production platform on

May 6, Bruce Webb, Furie senior vice president, told Petroleum

News in an April 25 email.

The idea is that the rig will be stationed on the seafloor and

cantilevered over the platform for drilling wells.

Rules proposes changes to HB 247Cook Inlet oil and gas tax credits would be phased out and

North Slope credits phased out and partially replaced with

expenditure carry forward under a committee substitute for

House Bill 247 rolled out April 26 by the House Rules

Committee.

Work began on revisions to a House Finance Committee

CS after that bill couldn’t get traction in the House earlier in

April and was returned to the Rules Committee.

RCA OKs Beluga field purchaseThe Regulatory Commission of Alaska has approved the

purchase by electricity utilities Municipal Light & Power and

Chugach Electric Association of ConocoPhillips’ one-third

share of the Beluga River gas field on the west side of Cook

Inlet.

ML&P, a utility owned by the Municipality of Anchorage,

is purchasing 70 percent of ConocoPhillips’ interests in the

field, while Chugach Electric is purchasing 30 percent of the

see FURIE DRILLING page 20

see HB 247 page 18

see BELUGA PURCHASE page 16

2 PETROLEUM NEWS • WEEK OF MAY 1, 2016

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

15 Withstanding the forces of Arctic sea ice

New study finds existing construction standards for Arctic offshore oil platforms will ensure survival in Beaufort and Chukchi seas

EXPLORATION & PRODUCTION6 Hilcorp worried about legacy fields

Argues for regulatory changes to improve economicviability of renewal activities at marginal fields in Cook Inlet

ENVIRONMENT & SAFETY7 Questions over beluga whale disturbance

Marine Mammal Commission suggests tighterrestrictions to protect Cook Inlet whale population from seismic sound, other impacts

ALTERNATIVE ENERGY

7 Power outage hits Prudhoe Bay

8 Eastern coastal area tundra travel ends

8 First Nations feud over LNG

8 Communities picked for energy efficiency

4 Alberta, BC mull hydro, pipeline tradeoff

14 Hilcorp planning Milne Point pad expansion

14 Still in the countdown on industry jobs

15 Linc restructuring global operations

15 ORPC gets award for in-river power system

ASSOCIATIONS14 AAEE scholarship prize winner presents

5 Guttenberg: Tax system still unstable

Fairbanks Democrat, Finance Committee member says Legislature has historically not done well crafting system that offers balance

FINANCE & ECONOMY

GOVERNMENT

NATURAL GAS

Point Thomson online

ExxonMobil starts condensate production at most easterly North Slope field

A major CD5 expansion

ConocoPhillips to increase the NPR-A development from 15 to 33 wells

Cleaning up Canada

Trudeau government wants climate-change plan this year; Saskatchewan resists

ON THE COVER

Rules proposes changes to HB 247RCA OKs Beluga field purchase

Furie is preparing for drilling

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SIDEBAR, Page 18: Canada defines upstream emissions

page11

Parnell heads governors’ 7-membercoastal states coalition E X P L O R A T I O N & P R O D U C T I O N

N A T U R A L G A S

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

Vol. 17, No. 44 • www.PetroleumNews.comA weekly oil & gas newspaper based in Anchorage, Alaska

Week of October 28, 2012 • $2

The October issue of North of 60 Mining News is enclosed.

October Mining News inside

PHOTO BY CHRIS AREN D, COURT ES Y OF USI BELLI COA L MI NE I NC .

Thomas Tak e, ch arged w ith the large task of repairing

tires at the U sibelli Coal M ine in Healy, holds one of

some 4,500 high-paying mining jobs in Alaska. An

employment forecast published by the Alaska

Depa rtment of Labor and W or kforce Development in

October pegged the state’s mining sector job grow th

from 2010 t o 2020 at 19 percent. Page 14.

A special supplement to Petroleum NewsWEEK OFOctober 28, 2012

3 P en t a g o n ba ck s U cor e in no v a tio n

Contract ties DoD to Bokan, state-of-the-art method for extracting REEs

11 E m er a l ds g l im m e r in g o ld s e tt i n g

North C ountry Gold makes rare gem discovery in Nunavut greenstone belt

24 N e w G old t h ir s t y f or B l a ck w a te r

Miner dri lls 250,000 meters, makes vast land grab in gold-rich central BC

Budget planners cautious; landsales, well authorizations down

Bean counters and number crunchers are in full swing in

Canada assembling 2013 capital budgets against a worrying

backdrop of shaky industry forecasts, sharp declines in gov-

ernment land auctions and plunging new well permits issued

by regulators.The current betting points to troubles for the upstream,

reflected in gyrating oil and natural gas prices, and a contin-

uation of the lackluster showing in the drilling sector that has

extended over recent years.One of the early messages came from Schlumberger Chief

Executive Officer Paal Kibsgaard, who told analysts that liq-

uids activity in North America will “no longer be able to off-Hanging pipeline: September floodsleave Kenai area gas line dangling

Roads and railroad bridges weren’t the only things that

washed out in the heavy rains which hit Southcentral Alaska

in September. Marathon Oil, in the process of selling its Cook Inlet

assets to Hilcorp Alaska, is dealing with a washout along

Kalifonsky Beach Road near Kenai which left a segment of a

gas pipeline dangling. The Pipeline and Hazardous Materials Safety

Administration, PHMSA, described the situation and action it

requires in an Oct. 5 corrective action order. The affected line is a 20-inch diameter pipeline transport-

ing natural gas from the Kenai gas field to facilities south of

Kenai. PHMSA said the line was buried parallel to and with-

see BUDGET CAUTION page 18

see FLOODING AFTERMATH page 21

CD-5 is aliveConoco sanctions Alpine West; now needs partner approval; first oil by 2016

By ERIC LIDJIFor Petroleum NewsA fter years of permitting delays, ConocoPhillipsCo. is moving ahead on CD-5, the fourth satel-

lite of its Alpine field on the North Slope, the com-

pany announced Oct. 25.The ConocoPhillips board sanctioned the project

in October, Executive Vice President Exploration

and Production Matt Fox said during a third quarter

earnings call. “The project is now pending partner

approval, which is expected in November,” Fox said.

ConocoPhillips expects CD-5 production to begin

in 2016, Fox said. The company previously estimat-

ed construction would begin in 2014 with first oil in

late 2015.

After bringing the Alpine field at the Colville

River unit into production in 2000, ConocoPhillips

and its partner Anadarko brought three Alpine satel-

lites online over the following decade: Fiord in

August 2006, Nanuq in December 2006 and Qannik

in 2008. Also known as Alpine West, the CD-5 satellite

ConocoPhillips produced some 176,000barrels of oil equivalent per day in

Alaska during the third quarter, downsome 32,000 barrels of oil equivalent per

day from the same period last year.

see CD-5 page 22New field ‘challenge’ExxonMobil: Schedule is tight for achieving first production at Point Thomson

By WESLEY LOYFor Petroleum NewsM eeting the target date for starting productionfrom Alaska’s Point Thomson field will be “a

challenge,” an ExxonMobil executive said.The company has pledged to start producing natu-

ral gas condensate from the remote eastern North

Slope field by the winter of 2015-16.But it still has multiple permitting hurdles to clear

before it can begin construction of production facili-

ties and a pipeline to feed the condensate into the

existing North Slope transportation network.Company representatives appeared Oct. 23 at a

hearing of the Regulatory Commission of Alaska,

which is considering an ExxonMobil subsidiary’s

application for a certificate of public convenience and

necessity to build and operate the 22-mile pipeline.

One commissioner asked the ExxonMobil reps

whether they are on schedule with the Point Thomson

project.“We are on schedule, but it is very tight,” replied

Jeff Ray, vice president of PTE Pipeline LLC, the

company seeking the certificate for the Point

Aside from the certificate, ExxonMobilneeds a number of other major

authorizations before it can proceed withthe Point Thomson development.

see TIGHT SCHEDULE page 23Time for action is hereSouthcentral Alaska utilities are moving forward on options for gas imports

By ALAN BAILEYPetroleum NewsWith natural gas supplies from Cook Inlet set

to fall short of local gas demand by 2014 or

2015, the time has come tomove ahead with arrange-ments to supplement thoselocal supplies with importsfrom elsewhere, Southcentralpower and gas utility executives told the

Regulatory Commission of Alaska during a public

meeting on Oct. 24. Southcentral residents and

businesses depend on gas both for power genera-

tion and for the heating of buildings.“I’m personally done wringing my hands,”

Bradley Evans, CEO of Chugach Electric

Association, told the commissioners, saying he

takes responsibility for ensuring continuity of gas

supplies for his utility. Chugach Electric currently

generates about 90 percent its power using gas-

fueled power plants.

Lee Thibert, senior vice president ofChugach Electric, said that the utilities

have asked potential shippers of importedgas for expressions of interest in theimport arrangements.

see GAS IMPORTS page 24

What's the big attraction?

A. an industry institutionB. quality, accurate reportingC. attractive, readable designD. 98 percent market saturation

To advertise in Petroleum News callSusan Crane at 907-770-5592, orBonnie Yonker at 425-483-9705. Tosubscribe visit PetroleumNews.com,call 907-522-9469, or email circulation@PetroleumNews.com.

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

Alaska Rig StatusNorth Slope - Onshore

Doyon DrillingDreco 1250 UE 14 (SCR/TD) Milne Point J-23 Hilcorp Alaska LLC Dreco 1000 UE 16 (SCR/TD) Standby BPDreco D2000 Uebd 19 (SCR/TD) Alpine CD5-02 ConocoPhillipsAC Mobile 25 StandbyOIME 2000 141 (SCR/TD) Kuparuk 1J-182 ConocoPhillips 142 Kuparuk 3S-613 ConocoPhillipsTSM 7000 Arctic Fox #1 Tight Hold Caelus

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

Kuukpik Drilling 5 Offshore Modification Hilcorp Nabors Alaska DrillingAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Deadhorse Available Mid-Continental U36A 3-S Deadhorse AvailableOilwell 700 E 4-ES (SCR) Deadhorse AvailableDreco 1000 UE 7-ES (SCR/TD) Kuparuk ConocoPhillipsDreco 1000 UE 9-ES (SCR/TD) Deadhorse AvailableOilwell 2000 Hercules 14-E (SCR) Deadhorse AvailableOilwell 2000 Hercules 16-E (SCR/TD) Mustang location Available Oilwell 2000 Canrig 1050E 27-E (SCR-TD) Deadhorse Available Oilwell 2000 33-E Deadhorse Available Academy AC Electric CANRIG 99AC (AC-TD) Deadhorse AvailableOIME 2000 245-E (SCR-ACTD) Oliktok Point ENIAcademy AC electric CANRIG 105AC (AC-TD) Deadhorse Available Academy AC electric Heli-Rig 106AC (AC-TD) Deadhorse Available

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay, Standby BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Drill Site U, Well 06 BPIdeco 900 3 (SCR/TD) Available

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) Nikaitchuq SP04-SE5 ENI

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

Cook Inlet Basin – Onshore

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

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

Aurora Well ServicesFranks 300 Srs. Explorer III AWS 1 Stacked out west side of Cook Inlet Available

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

Cook Inlet Basin – Offshore

Hilcorp Alaska LLC National 110 C (TD) Platform C, Stacked Hilcorp Alaska LLC Rig 51 Steelhead Platform, Stacked Hilcorp Alaska LLC Rig 51 Monopod Platform, Drilling Hilcorp Alaska LLC Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151 Furie Upper Cook Inlet KLU#1Cook Inlet EnergyNational 1320 35 Osprey Platform, Suspended Cook Inlet Energy

Mackenzie Rig Status

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

Central Mackenzie ValleyAkitaTSM-7000 37 Racked in Norman Well, NT Available

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of April 28, 2016.

Active drilling companies only listed.

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

This rig report was prepared by Marti Reeve

Baker Hughes North America rotary rig counts* April 22 April 15 Year AgoUnited States 431 440 932Canada 40 40 79Gulf of Mexico 25 27 33

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

JUDY

PAT

RICK

PETROLEUM NEWS • WEEK OF MAY 1, 2016 3

4 PETROLEUM NEWS • WEEK OF MAY 1, 2016

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l G O V E R N M E N T

Alberta, BC mull hydro,

pipeline tradeoffBy GARY PARK

For Petroleum News

Desperate times require desperate

measures, an axiom that now seems to

resonate with the British Columbia and

Alberta governments.

British Columbia is embarking on con-

struction of a huge hydroelectric dam just as

the government’s hopes of distributing most

of the project’s 1,100 megawatts of output

to the natural gas exploration and produc-

tion end of its LNG industry are faltering.

Meanwhile, Alberta’s struggles to gain

pipeline access to tanker terminals to export

oil sands bitumen to Asia and Europe are

well documented.

Although committed to spending C$8.3

billion on its Site C dam in remote north-

eastern British Columbia, the government

of Premier Christy Clark faces the risk of

meeting a 2024 completion date at the time

its major customer base has evaporated.

Alberta’s challenge is to get British

Columbia to sign off on Enbridge’s C$6.5

billion 525,000 barrels per day Northern

Gateway pipeline to a port at Kitimat or

Kinder Morgan’s plan to triple capacity to

890,000 bpd on its Trans Mountain pipeline

to the Greater Vancouver area.

Using comparatively clean hydroelectric

power rather than natural gas-generated

power to extract and process its bitumen

presents an attractive option to Alberta,

which is resolutely committed to reducing

greenhouse gas emissions from the oil

sands.

Talks underwayAnd this is where pragmatism has taken

over, with Alberta Premier Rachel Notley

confirming to the Globe and Mail that mul-

tilateral talks have been started by the two

provinces that could lead to construction of

a pipeline to the British Columbia coast in

exchange for a long-term contract to buy

electricity from Site C.

Notley has even gone as far as hinting

she might be willing to consider an about-

turn on Northern Gateway from her once-

unyielding opposition to that project —

clear proof if any was needed of Alberta’s

fiscal plight.

“My opinion (on Northern Gateway) has

evolved and changed a little bit over time,”

she said, while noting that Enbridge faces

an “uphill battle” to meet 200 conditions

attached to the project’s approval by

Canada’s National Energy Board.

Notley also suggested that the Trans

Mountain proposal might be a safer bet

because it involves expansion of a system

that has operated for 63 years with only a

handful of leakage incidents.

However, she was not ready to concede

that a quid-pro-quo deal might be in the

works with British Columbia and a

spokesman for Clark, although confirming

talks are underway, said his government has

not shifted from the five conditions it has

imposed on any pipeline project, including

world-class safety measures, agreements

with First Nations and economic benefits

for British Columbia to offset the environ-

mental risks it would take.

Quiet optimismThe spokesman said there is now quietly

building optimism that the conditions can

be met, while the use of hydro power in the

oil sands would help Alberta “brand their

product better.”

Bolstering the argument on the use of

hydro power, a new study by the Canadian

Energy Research Institute said that using

CHRISTY CLARK RACHEL NOTLEY

see PIPELINE TRADEOFF page 6

By STEVE QUINNFor Petroleum News

House Rep. David Guttenberg says

lawmakers have failed to get oil

taxes right in previous attempts and it’s

hurting the state’s bottom line. The man

who once worked on the Trans Alaska

Pipeline System says the state needs a

more transparent and easily understood

tax system. He’s not confident any

efforts thus far will advance that change.

Guttenberg, a Fairbanks Democrat and

member of the House Finance

Committee, discussed his views with

Petroleum News.

Petroleum News: You’ve been aroundwhen most of these changes were beingdiscussed, be it PPT, ACES or SB 21.Why do you suppose you’re wrestlingover taxes and credits again, even as it’snot a wholesale rewrite of SB 21?

Guttenberg: For a large degree, we

never get it right for lack of a better

term. The outside influences pushing and

pulling our decision making process are

always making sure there is ambiguity in

it. People take advantage of it when it’s

not clear. We didn’t get to do all the sce-

narios. When we did ACES, nobody ever

thought prices were going to go over

$100 or crash down below $40. We did-

n’t run those scenarios. We didn’t run

the credit scenarios.

Personally, I think some people like

that. We get caught up in the political

process and that is what it is. We simply

do not create a stable system for the

state or the industry. As long as you

don’t have something that is stable, it’s

always going to be changing.

Petroleum News: Without knowingwhat may emerge from this building, doyou suspect that you could be doing thisnext session in some form?

Guttenberg: You know we are so

dependent on oil and gas that regardless

of the volatility of the market or whether

money is rolling in or not, it’s the pru-

dent thing to do to be examining the

nature of the regime here. Who wouldn’t

do that? Who wouldn’t look at are we

doing enough or are we not doing

enough? What do we need to be doing

that we are not doing before?

Unfortunately, all too often there are

winners and losers. I think the state has

taken a poor policy approach that has

caused this.

Petroleum News:Do you get a sensethat this could betougher becausethere are someamong the 40 in theHouse who wantsome changes, somewho want a lot ofchanges and thosewho want almost no changes? The spec-trum seems to be stretched more than inpast years when oil taxes were on thetable.

Guttenberg: there is always a feeling

from some of us in the building that we

had the wool pulled over our eyes as

well. That includes all the 60 (including

the Senate) that something was done that

we didn’t like. Now you have where we

have pulled the books out of children’s

hands and we have to balance that with

the $700 million worth of credits we are

paying to industry that is hemorrhaging

the state’s economy. That is the world

we live in.

Petroleum News: What was yourreaction to hearing the $700 million andthe state’s ability to pay for it?

Guttenberg: My biggest problem is

not understanding the ramifications and

the return. What is the return the state is

getting for its credits? Theoretically we

would know the increase in flow, the

finds, the production that is coming on

board, how many jobs have been creat-

ed. How much gas is going to be avail-

able for Alaskans. We can only guesti-

mate at those things. We don’t have a

simple result from an investment that we

are paying for.

Petroleum News: How can thatchange?

Guttenberg: I prefer to have a more

public process. Like credits. Credits

aren’t taxes. Credits are credits. You

have to apply for it. It’s a voluntary pro-

gram. If you want to apply for credits,

then you should supply the state with

information that we need to value

whether or not you are doing that. You

have to make your records public. If

there are confidentiality issues on propri-

etary information, there are ways to get

around that. We can waive certain

things. Again, they are not taxes; they

are credits. They are voluntary. If you

want it, make the information available.

Then we’ll take a look at it and decide

it’s in the mutual best interest, not just

the industry’s best interest.

Petroleum News: Last summer, youhad hoped to get more answers and whatyou’re getting from the credits?

Guttenberg: I’ve gotten some through

channels. You can extrapolate from the

Department of Revenue’s resource book

and how much things have changed.

There is no way to put a definitive state-

ment on almost any of this stuff. The

availability of gas in Cook Inlet for in-

state use, you can guestimate what that

is long term. The

increased flow — most of

those projects are old

numbers. Development

plans were in place long

ago and they are just com-

ing to fruition. The answer to that is no.

Petroleum News: I’m not asking youto speak for him, but do you suspect thegovernor might have to cut or veto morecredits?

Guttenberg: If I were the industry, I

would be at the table a lot more than

they are now. The one thing we are

always hearing is they want stability.

The governor rolled it forward last year;

he didn’t really cut it. He is only obligat-

ed to put in $73 million this year.

The companies have borrowed money

with the understanding that it’s coming

back. If I were them I would make sure

I’m at the table participating in a func-

tional way. Not the screaming that we

hear from all the government relations

people. Don’t touch me. Don’t hurt me.

You’re going to kill the industry if you

cut a penny. Last year they were arguing

over a penny: A penny for the spill

response fund. They didn’t want to give

up a penny per barrel. Not per gallon,

per barrel. That can’t go on. That’s com-

pletely unconstructive to what needs to

be done in the state of Alaska.

Petroleum News: Have you heardanything from the industry that makessense to you?

Guttenberg: No. I mean

I’ve heard some back chan-

nel stuff about what some-

body wants or needs. But

the industry comes to the

table and all they ever say

is don’t touch me, don’t harm me, don’t

hurt me. When you ask a question, it’s

all the same answers. It’s never what can

we do. So there is a lot of cynicism built

into this. They created the unreliability

and the unsustainability issues.

Petroleum News: What concerns youmost about the state’s tax credit system?

Guttenberg: We have to have a man-

ageable system that works. We are hurt-

ing Alaskans. We’re clearly hurting

Alaskans in the budget climate in the

l G O V E R N M E N T

Guttenberg: Tax system still unstableFairbanks Democrat, Finance Committee member says Legislature has historically not done well crafting system that offers balance

PETROLEUM NEWS • WEEK OF MAY 1, 2016 5

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see GUTTENBERG Q&A page 17

By ERIC LIDJIFor Petroleum News

Hilcorp Alaska LLC is still in a holding

pattern at the northern west side of

Cook Inlet, where it operates four units:

Ivan River, Lewis River, Pretty Creek and

Stump Lake.

The company has no drilling or rig

workover operation planned at the units

this year and is warning the state that lega-

cy field could be in danger in the current

economy.

The Ivan River, Lewis River and Pretty

Creek units are currently in production.

The Stump Lake unit, on the other hand,

has been struggling over the past decade

and its future might be dependent on activ-

ities at the Beluga River unit, according to

Hilcorp.

The Stump Lake unit was formed in

1977 and production was suspended short-

ly thereafter. The unit produced from the

41-33 well from 1990 until 2000 and again

from 2009 until 2012, when mechanical

issues from a workover prevented produc-

tion.

As part of negotiations over a 2015 plan

of development for the unit, the Alaska

Department of Natural Resources required

Hilcorp to swab the 41-33 well and add

perforations if the swabbing failed to

restore production. The state also required

the company to complete an ongoing field

study at the unit. Although the company

said it “met and exceeded” those require-

ments, its attempts to revive production

failed.

New well or rig workover requiredNow, Hilcorp believes any future

attempt to revive Stump Lake unit produc-

tion will require drilling a new well or con-

ducting a rig workover to fix the problems

with 41-33.

Those conditions could prevent any

progress at the unit in the near term. The

unit is located within the Susitna Flats State

Game Refuge, which means drilling can

only occur between November and March.

Any additional drilling opportunities at the

unit “are known to be limited and are not

economic under current market and regula-

tory conditions,” according to the compa-

ny. Even so, Hilcorp has told the state it

would study the economic and logistic fea-

sibility of reviving production at the unit

this coming winter.

Another possibility for the unit is to

connect its operations with those at the

Beluga River unit. Hilcorp currently owns

a one-third working interest in the field and

is in the process of becoming the unit oper-

ator after predecessor ConocoPhillips

Alaska Inc. sold its one-third working

interest to Municipal Light & Power and

Chugach Electric Association.

“Hilcorp’s increased presence on the

west side of Cook Inlet brings new oppor-

tunities to make rigs, equipment and man-

power available to small-scale operations,

such as the Stump Lake unit, that otherwise

would not be economic,” the company told

the state in a plan of development from

March 2016. Without such “critical mass”

of projects in the region, “the economic life

of the Stump Lake unit has likely passed,”

the company added.

Any development project at Stump

Lake would “require substantial fiscal

investment with declining economic

returns. This situation will eventually

spread to other legacy fields throughout

Cook Inlet.” the company wrote and asked

the state to consider that unpromising eco-

nomic condition as it reviewed the pro-

posed plan of development.

In a comment that is atypical for such a

routine planning document, Hilcorp also

urged officials “to evaluate regulatory and

policy changes that, going forward, will

extend the useful life of similarly situated

legacy fields while minimizing waste,

maximizing existing infrastructure and

promoting sound environmental and eco-

nomic policy.”

Producing unitThe Ivan River unit produced some 1.8

million cubic feet per day from the

Sterling-Beluga Gas participating area and

1.2 million cubic feet per day from the

Tyonek participating area in 2015, accord-

ing to Hilcorp. The company did not drill

any wells or conduct any rig workover

operations last year and has none planned

for this year.

6 PETROLEUM NEWS • WEEK OF MAY 1, 2016

S P O N S O R S H I P O P P O R T U N I T I E S

R E G I S T R A T I O N F O R M

that energy source could “potentially pro-

vide an option to reduce GHG emissions.”

It said that regardless of high initial

investments — including about C$300 mil-

lion to build capacity on an existing trans-

mission link from British Columbia to the

oil sands — it might be possible to lower

the cost of electricity through long-term

contracts.

But the study cautioned that British

Columbia does not have a monopoly on the

hydro option, given the prospect of a dam

on the Alberta border with the Northwest

Territories or a partnership with Manitoba

to build a dam.

CERI said a transmission link from

British Columbia could utilize existing

infrastructure within two to five years and

“lead to zero to minimal new environmen-

tal and social impacts.” l

continued from page 4

PIPELINE TRADEOFF

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

Hilcorp worried about legacy fieldsArgues for regulatory changes to improve economic viability of renewal activities at marginal fields in Cook Inlet

“Hilcorp’s increased presence onthe west side of Cook Inlet bringsnew opportunities to make rigs,

equipment and manpoweravailable to small-scale

operations, such as the StumpLake unit, that otherwise would

not be economic.” —HilcorpAlaska plan of development

see LEGACY FIELDS page 7

By ALAN BAILEYPetroleum News

The Marine Mammal Commission, a

federal government agency charged

with independent oversight of the opera-

tion of the Marine Mammal Protection

Act, has sent a letter to the National

Marine Fisheries Service suggesting a

tightening of proposals for the issue of

incidental harassment authorizations in

Alaska’s Cook Inlet. The IHAs in ques-

tion, designed to protect mammal species

such as the Cook Inlet beluga whales,

particularly apply to offshore seismic

and drilling operations in the inlet.

The Cook Inlet beluga whale popula-

tion has been listed as endangered under

the Endangered Species Act since 2008.

And according to the Marine Mammal

Commission there are at least 10 marine

mammal species that are known to exist

in Cook Inlet and that could be disturbed

by industrial operations.

The fisheries service has been dealing

with several IHA applications for Cook

Inlet and had decided to conduct a pro-

grammatic environmental assessment

that would evaluate and set out mitiga-

tion requirements for multiple offshore

projects. The agency published a draft

version of the environmental assessment

on March 9. The Marine Mammal

Commission letter, sent by Rebecca

Lent, executive director of the commis-

sion, on March 28, the final day for pub-

lic comments on the draft document, rep-

resented the commission’s response to

that draft.

Scope of the assessmentPart of the commission’s critique of

the environmental assessment relates to

the assessment’s scope. Apparently,

while the fisheries service had originally

anticipated considering all planned and

on-going activities in Cook Inlet, the

draft assessment only considers three

projects: an ExxonMobil project associ-

ated with the Alaska LNG project, an off-

shore seismic survey planned by

SAExploration and offshore drilling

planned by BlueCrest Operating Alaska.

The assessment makes no mention of an

IHA issued for pile driving at the Port of

Anchorage, the commission’s letter says.

And other potential activities, including

oil and gas construction, additional off-

shore drilling, coal mine related con-

struction and further port projects could

all impact marine mammals in the inlet,

the commission’s letter says.

“The commission believes that the

endangered species of Cook Inlet beluga

whales warrants a complete accounting

of all activities that may occur in 2016

and that could affect the stock,” the letter

says.

The commission recommends that the

fisheries service should contact a wide

variety of entities that operate around

Cook Inlet, to ensure that all significant

noise generating activities are considered

in the environmental assessment.

The commission also questions a pro-

posal in the environmental assessment to

issue the three IHAs that have been

requested, using existing, specified miti-

gation measures for limiting the distur-

bance to marine mammals. It appears

that the required mitigation measures are

not consistent across the IHAs and, fur-

thermore, there may be merit in adding

some further mitigation measures that

would provide further protections to the

animals, the letter says.

Combined impactsThe commission’s letter also takes

issue with the manner in which the IHAs

are considered individually, without tak-

ing into account the combined impacts

on the wildlife of projects which can take

place within the same time span.

“As the number of entities conducting

activities in Cook Inlet increases, the

total number of authorized beluga whale

takes also increases under that

approach,” the letter says. “Further, if

two or more activities that alone would

take only small numbers of marine mam-

mals and have only negligible impacts

are being conducted in close proximity to

one another or at the same time, there is

a much greater risk that the MMPA

(Marine Mammal Protection Act) limits

will be exceeded.”

A “take” is a regulatory term referring

to the disturbance of an animal.

A programmatic approach to manag-

ing incidental takes of marine mammals

would involve implementing a cap on the

total annual takes, an approach that

would stand a greater chance of ensuring

that the total take does not impede the

recovery of the beluga whale population,

the commission’s letter says.

The letter also urges the fisheries

service to make sure that it considers all

of the marine mammal species that may

be found in Cook Inlet when preparing

the final environmental assessment for

the IHAs. l

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

Questions over beluga whale disturbanceMarine Mammal Commission suggests tighter restrictions to protect Cook Inlet whale population from seismic sound, other impacts

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A previous operator established a gas

storage operation at the unit in 2011 but

Hilcorp relinquished the storage lease last

year because of damage to the IRU 44-36

well.

The Lewis River unit produced some

206.5 million cubic feet from the LRU C-

01RD well at the Lewis River Gas Pool

No. 2 in 2015, according to the company.

Hilcorp did not drill any wells or conduct

any rig workover operations last year and

has none planned for this year. The compa-

ny did shut-in the Lewis River D-1 dispos-

al well in 2015.

The Pretty Creek unit produced some

300,000 cubic feet from the Beluga partic-

ipating area in 2015. Hilcorp did not drill

any wells or conduct any rig workover

operations last year and has none planned

for this year. The unit includes a storage

operation. Hilcorp injected 291 million

cubic feet and withdrew 528 million cubic

feet during 2015. l

EXPLORATION & PRODUCTIONPower outage hits Prudhoe Bay

The Prudhoe Bay oil field had a power outage which reduced production on

April 24.

BP said in an April 25 statement that crews were in the process of restarting

production. There were no injuries or damage to the environment from the inci-

dent.

“We are working diligently and expect to bring all of the affected oil process-

ing facilities back into service over the next two days,” the company said.

“Oil production will gradually ramp back up afterwards.”

BP said safety remains “our highest priority as we move through the process.”

Data posted by the Department of Revenue’s Tax Division show Prudhoe pro-

duction dipping to 150,086 barrels April 24 and then to 57,781 barrels April 25.

By April 26, the last date posted prior to this issue going to print, the daily pro-

duction was 135,780 barrels.

Volumes reported by the Tax Division for Prudhoe include satellites at the field

and production from the Hilcorp Alaska-operated Milne Point and Northstar

fields.

Prudhoe production was 298,705 bpd April 23, the day prior to the power out-

age.

—PETROLEUM NEWS

continued from page 6

LEGACY FIELDS

By GARY PARKFor Petroleum News

Battle lines are hardening within British

Columbia’s First Nations over the

future of LNG, nowhere more clearly than

in the Lax Kw’alaams First Nation which

presents the most formidable barrier to the

C$36 billion Pacific NorthWest LNG.

The feuding is starting to wear thin on

British Columbia Premier Christy Clark,

who visited the front lines in late April to

make clear she will not indefinitely toler-

ate opposition from what she has charac-

terized as the “Forces of No.”

Clark’s mission was seen as attempting

to build on signs of growing support

among First Nations for LNG.

The battle also extended to Canada’s

federal parliament, where members of

Parliament from the defeated

Conservative government of Prime

Minister Stephen Harper along with may-

ors from five of northeastern British

Columbia’s natural gas-dependent com-

munities put more pressure on the

Canadian government to speed up LNG

approvals.

Todd Doherty, who represents a con-

stituency in Prince George, demanded to

know when federal Justice Minister Jody

Wilson-Rayboud, the first aboriginal

Canadian to hold that post, would “break

her silence and push her colleagues” to

give the green light to Pacific NorthWest.

Environment Minister Catherine

McKenna intervened on behalf of Wilson-

Rayboud by repeating a message she’s

been sending to those, including the Clark

government, who have been lobbying for

the project.

“There’s no point in pushing me

because we make environmental decisions

based on evidence, facts and science,” she

said.

Rob Fraser, Mayor of Taylor, one of the

mayors’ delegation, said “we presented a

strong unified message that our citizens

and businesses are experiencing an eco-

nomic downturn of grave severity, with

massive job losses and business failures.”

Fishery a concernBut a delegation of aboriginal leaders

made their argument to officials in Prime

Minister Justin Trudeau’s office that

Pacific NorthWest would “decimate” a

salmon fishery in the Skeena River, the

second largest in British Columbia and a

vital source of the salmon catch in Alaska.

That delegation underscored the depth

of the rift within Lax Kw’alaams, whose

Mayor John Helin has strongly backed

Pacific NorthWest plans for an C$11.4 bil-

lion liquefaction plant and tanker terminal

on Lelu Island near Prince Rupert. (Lax

Kw’alaams represents six allied tribes and

3,200 people).

Helin sent a letter to McKenna in

March telling her his council endorsed the

Lelu plans provided an environmental per-

formance committee was appointed to

oversee the project.

The British Columbia government has

added to that argument by estimating

Pacific NorthWest would create 18,000

jobs in the northwest region and generate

billions of dollars in revenue.

But Garry Reece, who was defeated by

Helin in last November’s mayor race, said

the mayor has overstepped his authority in

declaring the Lax Kw’alaams council’s

support for exporting LNG from Lelu, not-

ing that the community voted unanimous-

ly a year ago against a C$1.14 billion ben-

efits package from Pacific NorthWest.

Numerous agreements signedThose who argue for the project say all

but three of 20 First Nations along the pro-

posed natural gas pipeline route to Prince

Rupert and all but three of the 19 whose

traditional territory flanks a planned

pipeline route to Kitimat have signed ben-

efit-sharing agreements.

Overall, 62 agreements have been

signed by 29 First Nations with the Clark

government.

However, it has been clearly demon-

strated in British Columbia that even one

holdout can stall construction on a

resource project or tie progress up in court.

Roland Willson, chief of the 544-mem-

ber West Moberly First Nation, was

unmoved by a government statement that

in return for its signature his community

would receive an initial payment of

C$201,000, C$1 million if construction

started and C$1 million once a pipeline

was in service, plus an undetermined share

of C$10 million in ingoing benefits.

“There is absolutely no need to rush the

process,” he said, defying threats by

Malaysia’s Petronas, operator of Pacific

NorthWest, that it will not wait much

longer for final approvals. “What (Pacific

NorthWest) is trying to do is get so far

down the road that we can’t turn back.” l

l N A T U R A L G A S

First Nations feud over LNG

8 PETROLEUM NEWS • WEEK OF MAY 1, 2016

The British Columbia governmenthas added to that argument byestimating Pacific NorthWest

would create 18,000 jobs in thenorthwest region and generatebillions of dollars in revenue.

ENERGY INFRASTRUCTURE CONSTRUCTION SERVICES

www.pricegregory.com

EXPLORATION & PRODUCTIONEastern coastal area tundra travel ends

The eastern coastal area has been closed to tundra travel, effective April 26.

The Alaska Department of Natural Resources Division of Mining, Land and

Water said April 26 that there had been high winds and below average seasonal

snow fall in the eastern coastal tundra opening area, making it no longer suitable

for off-road travel.

“Snow pack deterioration is widespread, evidenced by large swaths of visible

vegetation,” the division said, with snow quality very low in snow-covered areas.

Although temperatures remain at or slightly below freezing, “with cloudy skies

for the near future, there is enough thermal gain to warm the ground and continue

to break down the existing snow pack leaving the tundra vulnerable to damage.”

The closure was effective at 10 p.m., April 26, and the division said off-road

travel in progress must be completed by 10 p.m. April 29.

The snow may be adequate in some areas and the division said it would con-

sider granting travel extensions on a case-by-case basis, but said exceptions

require prior approval by an authorized division representative.

The division said the current plan is that summer off-road travel may begin at

6 a.m. July 15. Valid permits for specific projects are required, and are limited to

vehicles approved by the division for summer off-road travel.

—PETROLEUM NEWS

GOVERNMENTCommunities picked for energy efficiency

U.S. Sen. Lisa Murkowski, R-Alaska, has announced a list of 13 rural Alaska

communities selected for technical assistance funding under the Department of

Energy’s Remote Alaska Communities Energy Efficiency competition, known as

the RACEE competition.

“Alaska’s remote communities pay more for energy than just about anywhere

else in the country,” Murkowski said on April 26 when making the announcement.

“Promoting energy innovation in every way we can is important, and that includes

improved energy efficiency. The communities selected today will have the oppor-

tunity to develop efficiency plans that are both sustainable and aligned with their

vision for the future. Most importantly, these rural Alaska communities are now

one step closer to reducing energy costs for local residents.”

DOE has said that competition forms part of President Obama’s commitment

to fight climate change and assist remote Alaska communities. The Alaska Energy

Authority has been assisting DOE with community outreach in support of the ini-

tiative.

The first phase of the competition ended in February when 64 communities

were recognized as “community efficiency champions,” with pledges to improve

energy efficiency by at least 15 percent by 2020. DOE will provide all of these

communities with guidance on how to achieve their efficiency goals.

The awards for the 13 newly selected communities mark phase two of the com-

petition, in which DOE will make up to $600,000 in funding and technical support

available to help the shortlisted communities develop their energy efficiency

plans.

In the competition’s third and final phase DOE will award up to $3.4 million

in grants to up to five selected communities for the implementation of energy effi-

ciency plans developed in phase two.

—ALAN BAILEY

page10

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of May 1, 2016

Skeena posts maiden resource for Spectrum with 2015 assays

NEWS NUGGETSCompiled by Shane Lasley

BLM enters final stage of EAfor exploration road at Palmer

The U.S. Bureau of Land Management April 26 opened a

30-day public review and comment period on environmental

analysis of Constantine Metal Resources Ltd.’s proposed plan

of operations to expand exploration at its Palmer project locat-

ed on federal mining claims near Haines, Alaska. The plan,

submitted by Constantine last June, proposes up to 2.5 miles of

additional road construction that would provide access to up to

40 new drill sites on the Southeast Alaska property. The drill

CO

NST

AN

TIN

E M

ETA

L R

ESO

UR

CES

LTD

.

Constantine Metal Resources has applied for permits to build aroad that would provide safer, less expensive and more reliableexploration of the Glacier Creek deposit at its Palmer project nearHaines, Alaska.

see NEWS NUGGETS page 12

l P U B L I C P O L I C Y

Breaking gridlockMurkowski pushes energy bill with mining perks toward President’s desk

By SHANE LASLEYMining News

During an era of partisan gridlock on Capitol

Hill, U.S. Sen. Lisa Murkowski, R-Alaska,

has managed to garner broad support for an energy

bill aimed at modernizing the way power is pro-

duced in the United States, including numerous

provisions important to

Alaska. The legislation,

which was passed out of the

U.S. Senate with an 85-12

vote, also contains provisions

to improve access to the U.S.

mineral resources supply by

streamlining the minerals

mine permitting process.

“My top priority as chair-

man is to deliver for Alaska –

and I worked hard to add

dozens of our state’s priorities

for energy, mineral, and lands

policy into my broad, biparti-

san bill,” Murkowski, chair of

the Senate Natural Resources

Committee, explained.

For the mining sector,

Murkowski’s legislation, S.

2012, addresses key bottle-

necks in the United States’

minerals supply chain by establishing timelines for

critical mineral projects and making the mine per-

mitting process more efficient.

“The ‘Energy Modernization Policy Act of

2016,’ passed by the Senate today, includes much-

needed improvements in the nation’s permitting

systems for metal and mineral mines to better posi-

tion our country to achieve a truly all-of-the-above

energy portfolio,” said National Mining

Association President and CEO Hal Quinn.

“Simply put, mineral security is a critical element

to U.S. energy systems and Sen. Murkowski’s bill

promotes better access to the raw materials that

make it all possible.”

Bipartisan billCo-authored by U. S. Sen. Maria Cantwell, D-

Wash., the ranking Democrat on the Natural

Resources Committee, S. 2012 is touted as the first

comprehensive energy bill to

pass out of the Senate since

before President Obama took

office.

Over the ensuing nine

years, technological advances

have driven sweeping

changes to how energy is pro-

duced, stored, transmitted and

used in the United States.

“There’s so much change

going on in the energy sector now, we need to have

an energy bill every year,” said Sen. Cantwell.

“This bipartisan bill is an important next step

for saving consumers money on energy costs, pro-

viding more options to power U.S. homes and

businesses, and preparing the next generation of

workers for jobs in clean energy,” she added.

To craft energy legislation that is palatable to

Republicans and Democrats alike, Murkowski and

Cantwell avoided partisan pitfalls and included

provisions that are important to lawmakers on both

sides of the aisle.

S. 2012 includes provisions that support further

development of mineral, oil and gas resources as

well as renewable resources such as wind and

solar.

As a result, the Energy Policy Modernization

Act of 2016 garnered support from trade organiza-

tions such as the National Mining Association,

Alaska Oil and Gas Association and American

see BREAKING GRIDLOCK page 10

SEN. LISA MURKOWSKI HAL QUINN

SEN. MARIA CANTWELL

SHA

NE

LASL

EY

10NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF MAY 1, 2016

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

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NORTHERN NEIGHBORSCompiled by Shane Lasley

Independence lays out $1.5M Yukon exploration planIndependence Gold Corp. April 27 reported an initial C$1.5 million explo-

ration budget for 2016, which will fund roughly 1,500 meters of reverse circu-

lation drilling at its Boulevard project, trenching on the Moosehorn project

and geochemical sampling on several of the company’s Yukon properties. All

projects are located in the White Gold District south of Dawson City. Located

about 135 kilometers (85 miles) south of Dawson City, Boulevard is contigu-

ous to Kaminak Gold Corp.’s Coffee project. This year’s work at Boulevard

will continue testing the Denali Zone, a 700-meter-long soil anomaly drilled

with five RC holes in 2015. YCS15-01 3.33 grams per metric ton gold over

3.05 meters and YCS15-03 cut 4.25 g/t gold over 6.1 meters, defining a 130-

meter-long zone that is open along strike and at depth. Located roughly 130

kilometers (80 miles) south of Dawson City, and five kilometers (three miles)

east of the Yukon-Alaska border, Moosehorn hosts a 1,200-meter-long gold-

arsenic soil anomaly and covers an area that drains into multiple placer gold

creeks. Independence plans to complete two additional soil sampling grids to

extend the anomaly along strike and complete three trenches across the width

of the anomaly to determine the zones structural orientation and identify

future drill targets. Independence also reported that David Pawliuk, has retired

as vice president, exploration, but will remain as an advisor.

Early maiden resource reveals part of SpectrumSkeena Resources Ltd. April 25 reported a maiden resource estimate for

Spectrum and plans for the 2016 field season at the gold-copper project locat-

ed in the Golden Triangle of northwestern British Columbia. The Central

Zone of the Spectrum deposit hosts 8.95 million metric tons of indicated

resource averaging 1.04 grams per metric ton (290,000 ounces) gold, 6.58 g/t

(1.82 million oz.) silver and 0.11 percent (20.835 million pounds) copper.

Additionally, the deposit hosts 22.63 million metric tons of inferred resource

averaging 1.03 g/t (750,000 oz.) gold, 3.85 g/t (2.8 million oz.) silver and 0.11

see NORTHERN NEIGHBORS page 11

Petroleum Institute, as well as conserva-

tion groups such as the Pew Charitable

Trusts.

AOGA said a provision that would

allow for routing an Alaska natural gas

pipeline through Denali National Park

and Preserve in order to avoid a seismic

fault; and a requirement for the U.S.

Secretary of Energy to make a decision

on any liquefied natural gas export appli-

cation within 45 days after completion of

environmental review would be good for

Alaska’s natural gas sector.

“Alaska wins with this bill,” said Kara

Moriarty, president and CEO of AOGA.

“Not only do we as a state regain some

control over the overly burdensome fed-

eral permitting process as a result of this

bill, but our chances at realizing a com-

mercial natural gas project also are

increased.”

Organizations from both ends of the

spectrum also found worrisome provi-

sions in the legislation.

“Proponents claim that the bill is non-

controversial. But for those concerned

about government interference in the

energy sector, the authors have planted

red flags throughout the legislation,” said

an economist focused on energy and

environmental policy at the Heritage

Foundation.

Sierra Club Legislative Director

Melinda Pierce said, “Unfortunately,

problematic provisions remain in this bill

that would boost dirty fossil fuels and

dangerous nuclear projects, while under-

mining the President’s Clean Power Plan

and U.S. climate progress.”

“It is clear that a significant amount of

bipartisan effort went into this legislation,

but, at the end of the day, the balance of

this bill favors the dirty and dangerous

fossil fuels of the past at a time when we

need to move full speed ahead towards an

economy powered by clean, renewable

energy,” Pierce added.

House conference(s)For America’s mining sector, the most

important stage of Energy Modernization

Policy Act of 2016 may be its trip through

the U.S. House of Representatives.

Murkowski and Cantwell have

expressed a desire to conference with

their colleagues in the House in order to

get a bill to the President’s desk for sign-

ing.

Murkowski has been talking with

House Energy and Commerce Chairman

Fred Upton, R-Michigan, her counterpart

on the other side of Capitol Hill, about

conferencing S. 2012 with H.R. 8, a sim-

ilar energy bill that passed the House

largely along party lines.

In November, White House advisors

said they would recommend a veto of H.

R. 8 if it landed on the President’s desk in

its current form. On the other hand,

besides a few specific concerns with S.

2012, the Administration found the

Senate energy bill more palatable than the

House version.

“The Administration looks forward to

working with the Congress to address

these and other concerns as the bill (S.

2012) moves through the legislative

process,” the White House said in a

January statement.

NMA President Quinn would like the

mineral sections of S. 2012 to be confer-

enced with H. R. 1937, a mining bill

introduced by Rep. Mark Amodei, R-

Nevada. This measure has passed the

House on numerous occasions but has

never gained traction in the Senate.

“We now call on Congress to build on

this achievement and conference the

Senate-passed minerals provisions with

those included in H.R. 1937, the National

Strategic and Critical Minerals

Production Act, which passed the House

for the fourth time last October,” he com-

mented on the passage of the Senate ener-

gy legislation.

Amodei hopes his legislation, the

National Strategic and Critical Minerals

Production Act of 2015, will help

America become less dependent on for-

eign countries such as China for minerals

needed for its domestic security and eco-

nomic wellbeing.

“It’s not hyperbole to say our national

defense and way of life depend on miner-

al production,” Amodei upon the most

recent House approval of the bill. “From

military technology, such as aircraft and

missiles used by service men and women

to defend our country; to the cars, smart-

phones and televisions we use every day;

to medication and medical supplies; they

all contain strategic and critical minerals

such as rare earth elements, as well as

gold and silver, to name a few.”

To ensure the United States is more

self-reliant for its strategic and critical

minerals, H. R. 1937 aims to shorten the

nation’s notoriously long permitting

process.

“Our outdated and duplicative permit-

ting process can last on average seven to

10 years, discouraging investment and

jeopardizing the growth of downstream

industries, technological innovation and

supply-chain security,” explained Quinn.

S. 2012 also addresses key bottlenecks

in the United States’ minerals supply

chain by defining minerals critical and

strategic to the United States’ security,

economic, and energy needs and estab-

lishing timelines for the permitting

process for such minerals.

Murkowski vowed to continue her col-

laborative efforts to ensure that her bipar-

tisan energy bill advances through a con-

ference with the House and becomes law

before the end of this year. l

continued from page 9

BREAKING GRIDLOCK

Independence Gold’s 2016 exploration plan includes a 1,500-meter drill program on theBoulevard property in Yukon’s White Gold District that will follow up promising resultsfrom the Denali zone, where a hole drilled in 2015 cut 6.1 meters of 4.25 grams permetric ton gold.

For America’s mining sector, themost important stage of Energy

Modernization Policy Act of 2016may be its trip through the House.

“My top priority as chairman is todeliver for Alaska – and I workedhard to add dozens of our state’s

priorities for energy, mineral, andlands policy into my broad,bipartisan bill.” –Sen. Lisa

Murkowski, R-Alaska

IND

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(54.89 million lbs.) copper. Drilling to

date shows that the Central zone extends

from surface to a depth of 400 meters

and extends some 1,100 meters north-

south and 380 meters east-west. “The

Spectrum resource should be considered

preliminary as it is still open to expan-

sion to the west, north and south where

porphyry gold-copper mineralization was

recognized late in the 2015 field season.

In addition, copper and silver assays are

lacking for many historic holes,” said

Skeena Chairman Ron Netolitzky. “We

consider it somewhat premature to be

issuing a resource estimate when the

deposit has not been fully drilled off.

The focus for this season’s work pro-

gram will be to further expand the gold-

copper resource with wide-spaced

drilling, and to begin to define resources

on other high-priority gold and gold-cop-

per targets at Spectrum that have had lit-

tle or no drilling to date.” A drill pro-

gram has been outlined to define the lim-

its of the deposit to the north, south and

west. The entire target zone also will be

investigated in 2016 by an induced

polarization geophysical survey, as soon

as field conditions permit. Drilling of the

porphyry-style gold-copper mineraliza-

tion will be wider spaced and less

detailed than previous drilling directed at

the narrow, high-grade gold zones.

However, definition drilling along the

margins of the Central zone and future

in-fill drilling is still expected to capture

more of the high-grade structures. This

year’s proposed C$4 million program

includes an initial ground investigation

program, overlapping with and followed

by 8,000 to 10,000 meters of drilling.

Significant efforts will be made to trench

and drill targets away from the Central

zone. To date, only 19 out of 165 holes

completed at Spectrum have been drilled

outside the Central zone. Several targets,

that are ready for drilling, require only

limited refinement through prospecting,

detailed mapping, geophysics and

trenching.

Atac raises C$3.25M forRackla Gold exploration

Atac Resources Ltd. April 24 reported

the closure of a C$3.25 million non-bro-

kered private placement, consisting of

the sale of 5 million flow-through com-

mon shares at C65 cents each. “This

financing allows Atac to minimize the

use of its C$16 million treasury of hard-

dollars (non-flow-through dollars),” Atac

President and CEO Graham Downs

explained. “With approximately C$19

million now in its treasury, Atac is well-

positioned to substantially advance the

newly discovered Orion target and

Airstrip anomaly during the 2016 field

season.” At the Nadaleen trend, located

toward the eastern end of the Rackla

Gold property in Yukon Territory, Atac

plans to drill roughly 30 rotary air blast

holes to follow up on the 2015 discovery

hole at the Orion target, which returned

3.79 grams per metric ton gold over

47.24 meters. This hole bottomed in gold

mineralization with the last interval

grading 2.56 g/t gold over 1.52 meters.

At the Rau trend, soil sample coverage

around the 10-square-kilometer (2,500

acres) Airstrip gold anomaly will be

expanded and all high-priority anomalies

will receive detailed prospecting, trench-

ing and mapping. If warranted and time

permitting, the company plans to follow-

up the sampling and prospecting with

rotary air blast drilling. Atac also will

begin permitting a 69-kilometer (43

miles) tote road to the Rau Trend and

Tiger gold deposit.

Winter drilling extendsWellgreen’s Far West

Wellgreen Platinum Ltd. April 22

posted results of the 2015 fall and winter

exploration drilling and field work pro-

grams at its Wellgreen platinum group

metal-nickel project in southwestern

Yukon Territory. Wellgreen completed

4,078 meters of core drilling and 1,091

meters of reverse circulation drilling.

The 25-hole program targeted down-dip

extensions and higher grade mineraliza-

tion at the Far West, West, Central, East

and Far East zones to test the down-dip

extensions of known disseminated min-

eralization, as well as areas of higher

grade mineralization. Nine holes drilled

at Far West targeted down-dip and strike

extensions to known mineralization, as

well as potential upgrades of certain

inferred mineral resources from a 2015

preliminary economic assessment into

the measured and indicated mineral

resource categories. Holes WS-255, WS-

266 and WS-268 all intersected near-sur-

face mineralized zones grading more

than 3.75 grams per metric ton platinum-

equivalent. The platinum-equivalent cal-

culation takes into account the value of

the nickel, copper, cobalt, palladium and

gold also present in the mineralization.

Three holes drilled in the West zone tar-

geted potential upgrades of inferred min-

eral resources and assess the potential

for higher grade mineralization trends

within the main deposit area. Hole WS-

263 cut 55.2 meters of mineralization,

starting at a depth of 300 meters grading

5.63 g/t platinum-equivalent. Wellgreen

said this indicated the probable continua-

tion of higher grade mineralization

encountered in this area. Another four

holes targeted potential upgrades of

inferred mineral resources Central and

East zones. Hole WS-265 cut 547.7

meters grading 2.19 g/t platinum-equiva-

lent, including 63 meters averaging 3.81

g/t platinum-equivalent. Four holes also

were drilled in the Far East zone. Hole

WS-271 cut three mineralized zones at

Far East, include 262.8 meters grading

2.37 g/t platinum-equivalent. The results

from this program, along with drilling

completed in the fall and winter of 2014

and summer of 2015, will be incorporat-

ed into an updated deposit model that is

intended to form the basis of a potential

future pre-feasibility study.

Electrum nabs majorshare of Victoria Gold financing

Victoria Gold Corp. April 20 reported

plans to raise C$24 million through a

private placement of 80 million units at

C30 cents each. Electrum Strategic

Opportunities Fund L.P. has subscribed

to 60 million of the offered units and

Sun Valley Gold LLC has subscribed to

the remaining 20 million units. Upon

closing of the private placement,

Electrum is expected to own roughly

13.6 percent of Victoria Gold’s issued

and outstanding shares while Sun Valley,

already a significant shareholder, will

increase its ownership to around 18 per-

cent. Electrum Strategic Opportunities

Fund is a member of the Electrum Group

of Companies that is managed by The

Electrum Group LLC, founded and

majority-owned by the family of Thomas

Kaplan who serves as Electrum’s chair-

man and chief investment officer.

Electrum’s holdings include significant

stakes in Novagold Resources Inc.;

Kaminak Gold Corp.; NovaCopper Inc.;

and Wellgreen Platinum Ltd. Electrum

also owns a controlling stake in

Sunshine Silver Mining & Refining

Corp., owner of the historical Sunshine

Mine in Idaho and the Los Gatos project

in Mexico. Each unit to be issued in the

Victoria Gold private placement will

consist of a common share and half of a

warrant. Each warrant will entitle the

holder to purchase one Victoria Gold

share at C40 cents for a period of three

years. Electrum will have the right to

nominate one person for election to

Victoria Gold’s board of directors and a

right to participate in any future pro-

posed equity offering in order to main-

tain its pro rata stake in Victoria Gold,

subject to certain exceptions. The net

proceeds of the financing will be used to

continue exploration and development of

the Eagle Gold project at Victoria Gold’s

Dublin Gulch gold property in central

Yukon Territory. Victoria plans to devel-

op an open-pit mine and valley heap

leach operation at Eagle that would pro-

duce 192,000 ounces of gold annually

for roughly nine years, based on proba-

ble reserves of 92 million metric tons

averaging 0.78 grams per metric ton (2.3

million oz.) gold. Overall, Eagle Gold

hosts 222 million metric tons of indicat-

ed resources averaging 0.68 g/t (4.9 mil-

lion oz.) gold, inclusive of probable

reserves, and 78 million metric tons of

inferred resources averaging 0.60 g/t (1.5

million oz.) gold. Eagle Gold has

received all major permits for construc-

tion and operations and completed the

environmental assessment process.

Victoria is currently drilling Olive-

11NORTH OF 60 MINING

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continued from page 10

NORTHERN NEIGHBORS

see NORTHERN NEIGHBORS page 12

SKEE

NA

RES

OU

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ES L

TD.

Skeena Resources completed 17,350 meters of drilling in 61 holes during its 2015 program atSpectrum, resulting in a maiden resource for the gold-copper-silver property located in theGolden Triangle of northwestern British Columbia.

12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF MAY 1, 2016

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Shamrock, an exploration target located about 2,000

meters from the proposed infrastructure at Eagle Gold.

A maiden resource estimate for Olive-Shamrock is

anticipated to be included in an updated Eagle Gold

feasibility study scheduled to be released this fall.

Colorado doubles land positionin NW BC's Golden Triangle

Colorado Resources Ltd. April 20 reported the

acquisition of 32,825 hectares (81,111 acres) of

prospective land in the Golden Triangle area of north-

western British Columbia. Known collectively as

KingPin, the property consists of 29,425 hectares

(72,709 acres) of staked claims and 3,400 hectares

(8,401 acres) purchased from a third party. KingPin

covers 35 mineral occurrences and favorable geology

between the past-producing Granduc Mine and

Colorado’s KSP property under option from SnipGold.

The addition of KingPin, doubles Colorado Resources

holding in the Golden Triangle region. Mineral occur-

rences on the KingPin property include copper skarns,

copper porphyries, copper-gold porphyries, polymetal-

lic veins and gold veins. Past exploration focused on

the copper potential and may have not properly recog-

nized or evaluated the gold potential. Colorado intends

to advance exploration on the KingPin Property follow-

ing further review and compilation of the historical data

by its technical team. “We are looking forward to the

upcoming drill program focused on high-grade gold tar-

gets at Inel (on the KSP property) and advancing the

KingPin property in a similar manner to achieve what

we have accomplished to date at KSP,” said Colorado

President and CEO Adam Travis. Colorado has agreed

to pay C$20,000 in cash and issue 200,000 shares to an

arm’s length third party to acquire full ownership of the

3,400-hectare (8,401 acres) Max property, subject to a 2

percent net smelter returns royalty retained by the ven-

dor. Colorado has the option to purchase 1 percent of

the NSR for C$1 million within 240 days of commer-

cial production and thereafter, at any time, the remain-

ing 1 percent for C$5 million. Max will form part of

the overall KingPin property. l

continued from page 11

NORTHERN NEIGHBORS

sites would provide staging areas for helicopter and

ground-supported exploration activities at the copper- and

zinc-rich polymetallic deposit. While there is an existing

trail that was established in 1977, the road proposed by

Constantine is designed to be safer and minimize the envi-

ronmental footprint. BLM said the new proposal requires

further public, stakeholder, and agency review, including a

National Environmental Policy Act analysis, which was

initiated in November. The BLM received 173 public

comments on the plan, which helped identify several con-

cerns that were carried forward in developing the environ-

mental assessment. The EA includes two alternatives:

Constantine’s proposed plan; and no action. Under the no

action alternative, Constantine would continue exploration

under a permit that allows up to five acres of disturbance

on the Palmer property. The preferred alternative would

increase the allowable disturbances to 40 acres, which

would provide room for the access road and a larger

equipment lay-down area. The EA is available for public

review and comment until May 26. Constantine said it

plans to continue exploration for the next five to 10 years.

Red Dog production up; Qanaiyaqpit development now underway

Teck Resources Ltd. April 26 reported its Red Dog

Mine in Northwest Alaska produced record amounts of

combined zinc and lead concentrates during the first quar-

ter of 2016. During the first three months of the year, 1.08

million metric tons of ore averaging 17.4 percent zinc and

5.2 percent lead was milled at Red Dog, compared with

1.06 million metric tons averaging 16.5 percent zinc and

4.6 percent lead during the same period a year earlier. As a

result, the mine produced 157.1 metric tons of zinc and

32.3 metric tons of lead during the first quarter, up 8 per-

cent and 5 percent, respectively, from 145.9 million metric

tons of zinc and 30.7 metric tons of lead produced during

the first quarter of 2015. Capitalized stripping costs at Red

Dog totaled US$11 million in the first quarter, compared

with US$13 million a year ago. Teck said development of

Qanaiyaq, a near-surface deposit that lies to the south of

the mined out Red Dog main pit, began during the first

quarter. First ore from this deposit is expected in late 2016

or early 2017, which will help offset future grade declines

in the current Aqqaluk pit. At the end of 2014, Teck

reported 7.4 million metric tons of reserves averaging 24.7

percent zinc and 6.9 percent lead for Qanaiyaq. Overall,

Teck said its operations continue to turn a profit for share-

holders, despite continued challenging metals markets.

The company reported profit attributable to shareholders

of C$94 million (C16 cents per share) for the first quarter

of 2016, compared with C$68 million (C12 cents per

share) a year ago. Adjusted profit attributable to sharehold-

ers was C$18 million (C3 cents per share), compared with

C$64 million C11 cents during the first quarter of 2015.

“Again our operations performed well by reducing our

costs while maintaining production volumes,” said Teck

President and CEO Don Lindsay. “Notwithstanding that

the commodity cycle continues to be challenging, we are

encouraged by the change in direction in steelmaking coal

and zinc prices.” As of April 25, Teck had C$1.3 billion in

cash and US$3 billion of undrawn, committed credit facil-

ities. Teck said its cash balance is in line with expectations

and consistent with the company’s goal of finishing the

year with more than C$500 million. l

continued from page 9

NEWS NUGGETS

The addition of KingPin, doubles ColoradoResources holding in the Golden Triangle

region. Mineral occurrences on the KingPinproperty include copper skarns, copper

porphyries, copper-gold porphyries,polymetallic veins and gold veins.

PETROLEUM NEWS • WEEK OF MAY 1, 2016 13

By GARY PARKFor Petroleum News

Downsizing in Canada’s petroleum

industry seems destined to continue,

with one observer predicting that another

24,400 oil and gas jobs will be eliminated

this year, due to reduced capital spending,

consolidation and bankruptcies.

That forecast by PetroLMI, a unit of

Calgary-based Enform, would add to total

direct employment losses over the past two

years of between 40,000 and 52,600.

(Some analysts have put the losses of direct

and indirect jobs at 100,000).

Todd Hirsch, chief economist at ATB

Financial, takes a similar view.

He said it may take until the fall “before

some bloated staffing levels are tackled.

Many companies are getting employment

levels down to the bare bones and over the

spring and summer there will be more lay-

offs.”

Of the 230,000 people directly

employed in 2014 before oil prices started

their slide, an estimated 30,000 lost their

jobs in 2015, leaving 89,900 in oil and gas

services, 69,000 in exploration and produc-

tion, 30,000 in the oil sands and 10,000 in

pipelines.

Price recovery in 2017?A labor market outlook for the 2016-20

period funded by the Canadian govern-

ment and the Canadian Association of

Petroleum Producers is counting on a

recovery of oil prices in 2017, leading to

some re-hiring as capital spending recov-

ers and to fill jobs left by those who retire.

The outlook said that if oil remains

below US$60 a barrel over the next four

years, the industry will hire 46,435; at

US$60-$80 net hiring will run to 55,305.

The best hopes rest with Saskatchewan

whose government has created a “positive

business climate and collaborative rela-

tionship” with the industry, while British

Columbia could receive an employment

lift if only one LNG project leaves the

starting line, the report said.

But Cameron MacGillivray, chief exec-

utive officer of Enform, told the Financial

Post that even if some new hiring occurs in

2017-20, oil prices, capital investment and

employment as a whole will not return to

2014 levels.

He said those who have found work in

other sectors “may have a significant

impact on the oil and gas industry’s ability

to attract and retain a skilled labor force

once activity does ramp up.”

Substantial spending cutsThe road ahead has been marked by

Canada’s 27 largest producers who cut

their spending for 2016 by an average 32

percent, with ARC Financial projecting a

decline in cash flow to about C$17.5 bil-

lion this year from C$72 billion in 2014.

“We’re going to see all kinds of innova-

tion in cost cutting,” said ARC Vice

President Jackie Forrest. “Unfortunately

headcount is one of the first approaches

they take.”

Stephen Poloz, governor of the Bank of

Canada, said it could take more than three

years to recover from the shock caused by

low oil prices.

He said it will take that long “before

we’re settled at that new place where the

energy sector will have shrunk relative to

the whole economy and the rest of the

economy will have grown to fill that

space.

“Whenever we get some good, there are

three or four reasons why it might not be

for real or might not last,” he said. l

14 PETROLEUM NEWS • WEEK OF MAY 1, 2016

By ERIC LIDJIFor Petroleum News

Hilcorp Alaska LLC wants to increase the size of a

drilling pad at the Milne Point unit to accommodate

infrastructure for a grind and inject facility at the North

Slope oil field.

The expansion would add 5.3 acres to the Milne Point B

Pad to allow for “additional offloading facilities, transport

truck lanes and support facilities” for the existing grind and

inject facility. The company said that the expansion on the

north side of the drilling pad would allow it to minimize

risks when it is conducting simultaneous operations.

The project would begin over the coming summer, with

gravel placement starting in May, construction beginning in

August and the various aspects of the project wrapping up

between Oct. 31, 2016, and Oct. 31, 2017, according to the

company. The entire project should be completed by

September 2018, according to the company.

The construction side of the project will include “five

offload storage pits, transport truck lanes, equipment turn-

around areas and support facilities,” according to the com-

pany.

Maintaining G&I rateThe additional infrastructure will allow the Milne Point

Unit Grind and Inject Facility to maintain its processing

rate as drilling activities increase at the unit and prevent the

company from having to truck drilling fluids and drilling

solids to the nearby Prudhoe Bay Drill Site 4 Grind and

Inject Facility, according to the company. “During peak

seasons of winter drilling, the trucks can be offloaded into

the temporary lined storage pits to avoid long wait times

for transport vehicles,” the company wrote in a February

2016 application. “This will also ensure continuity of

drilling operations, reserve and offload capacity when the

MPU G&I is down for maintenance or non-operational.”

Hilcorp proposed the grind and inject facility in an

amended plan of development for the Milne Point unit in

March 2015 and began permitting in July 2016. The pro-

posal called for a facility capable of handling approximate-

ly 40,000 cubic yards of materials each year. The company

has also proposed reviving a similar facility at the

Northstar unit.

The state is taking comments through May 23.

Hilcorp acquired the Milne Point unit through its

acquisition of several BP Exploration (Alaska) Inc. prop-

erties in 2014 and has since been expanding operations at

the field. The company completed at least five production

and injection wells at the unit in 2015 and 2016 to date,

according to Alaska Oil and Gas Conversation

Commission records. l

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

Hilcorp planning Milne Point pad expansion

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

Still in the countdown on industry jobsStephen Poloz, governor of the

Bank of Canada, said it could takemore than three years to recoverfrom the shock caused by low oil

prices.

ASSOCIATIONSAAEE scholarship prize winner presents

The Anchorage Association for Energy Economics’ 2016 scholarship prize

winner, Molly Watt of the University of Alaska Anchorage, will present her schol-

arship research on high occupancy vehicle car pool lanes at the BP Energy Center

at noon May 5.

AAEE said the presentation will focus on the impact of high occupancy vehi-

cle lanes on fuel consumption and the use of public transportation, with some dis-

cussion on its potential applicability to the Glenn Highway.

The presentation is free and open to the public. No lunch will be provided but

attendees are free to bring brown bag lunches.

More information is available from Roger Marks at 907-250-1197 or rog-

marks@gmail.com.

—PETROLEUM NEWS

Join us for the AOGA 50th Anniversary Celebration & ConferenceDiscuss industry trends, legal & scientific issues and energy policies & politics.

Wednesday, May 25, 2016

7:00am to 5:30pm

Dena’ina Civic & Convention Center

$250 registration

Featuring Keynote Speakers

Atul Arya | Senior Vice President, Energy Insight, IHS

Alex Epstein | Author of The Moral Case for Fossil Fuels

Booth space and sponsorships are also available.

To advertise: Contact Susan Crane

at 907.770.5592

or Bonnie Yonker at 425.483.9705

PETROLEUM NEWS • WEEK OF MAY 1, 2016 15

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ALTERNATIVE ENERGYORPC gets award for in-river power system

The National Hydropower Association has awarded the operational excellence

category of its 2016 Outstanding Stewards of America’s Waters award to Ocean

Renewable Power Co. for ORPC’s RivGen commercialization project, the company

announced April 25. ORPC is conducting a multi-year program to commercialize the

RivGen technology, a hydrokinetic system for generating electricity from river cur-

rents, in the village of Igiugig in southern Alaska. Igiugig is on the banks of the fast-

flowing Kvichak River, not far from Lake Iliamna.

The idea is that Igiugig will be able to replace at least some of its expensive diesel-

fueled power by power from the hydrokinetic system. The system, which sits on the

river bed, has helical shaped turbine blades that drive an electrical generator.

“Remote communities like the Alaskan village of Igiugig often have to rely on

fossil fuels like diesel to generate electricity,” said Linda Church Ciocci, executive

director of NHA. “ORPC’s RivGen power system is working to be a clean, innova-

tive and affordable energy option for communities worldwide.”

To date ORPC has succeeded in generating power at Igiugig and integrating the

power into the village’s power grid. The next phase of the project will involve the

testing of some new design concepts, based on lessons learned from the project so

far. The Denali Commission, the Alaska Energy Authority, the U.S. Department of

Energy and the U.S. Department of Agriculture have all provided funding support for

the project.

“ORPC is deeply honored to receive the OSAW Award for Operational

Excellence,” said Chris Sauer, president and CEO of ORPC. “We are indebted to the

community of Igiugig, our Alaska project team, state and federal regulators, and to

the Denali Commission, Alaska Energy Authority, U.S. Department of Agriculture,

U.S. Department of Energy and private investors, whose support made this achieve-

ment possible.”

—ALAN BAILEY

l G O V E R N M E N T

Withstanding the forcesof Arctic sea ice New study finds existing construction standards for Arctic offshoreoil platforms will ensure survival in Beaufort and Chukchi seas

By ALAN BAILEYPetroleum News

Arecently completed research project,

conducted by the University of

Alaska in partnership with the U.S.

Department of the Interior’s Bureau of

Safety and Environmental Enforcement,

has found that existing engineering stan-

dards for the construction of Arctic off-

shore structures will ensure that the struc-

tures can survive the onslaught of sea ice

in extreme Arctic conditions, BSEE has

reported.

The idea of the study was to use infor-

mation from observed sea ice conditions

to estimate the likely ice forces and their

impacts on structures designed to the ISO

19909 standard, the international engi-

neering standard that applies to Arctic off-

shore structures for the oil and gas indus-

try.

To gather the necessary information,

the research team collected ice measure-

ments from the Chukchi and Beaufort seas

across multiple seasons over a two-year

period. Parameters recorded included the

annual timing of the first and last ice

occurrence, the ice level, the ice ridging,

ice keel depths and ice movement. An

analysis of the data provided a range of

annual data values and the ability to draw

conclusions about ice impacts on struc-

tures.

The researchers were also able to vali-

date recommendations in the engineering

standard for how to estimate the ice forces

that may impact an offshore structure. The

team found that, in fact, the standard is

conservative in its design requirements

and that it would, if applied, ensure the

survival of a structure in sea ice.

BSEE said that it will present the

results of the study at an upcoming meet-

ing in Washington, D.C., of the Arctic

Offshore Regulators Forum, to be attend-

ed by representatives from the six Arctic

nations.

In Alaska, BSEE has a dedicated pro-

gram coordinator who assists in identify-

ing research for advancing BSEE’s Arctic

regulatory objectives, BSEE said.

Currently, seven studies are in progress to

assess offshore engineering technology

and the conditions that operators face in

harsh Arctic conditions. The results of the

studies will help BSEE understand the

ways in which Arctic conditions could

impact future regulatory standards, BSEE

said. l

FINANCE & ECONOMY

Linc restructuringglobal operations

Three top Linc Energy Ltd. officials

have resigned as part of a restructuring.

Chief Executive Officer Craig

Ricato, Chief Operating Officer

Michael Mapp and Chief Financial

Officer Chris Munday resigned effec-

tive April 22, according to the compa-

ny.

On April 15, the Australian inde-

pendent entered “voluntary adminis-

tration,” an aspect of Australian law

allowing a company to temporarily

hand over control to outside entities.

“After receiving legal and financial

advice and considering all of the cur-

rent commercial prospects available to

the company to successfully complete

a financial restructure of the business

within a limited timeframe, the board

of Linc Energy made the decision that

it was in the best interests of the com-

pany to enter into Voluntary

Administration at this time,” the com-

pany announced in an April 15 state-

ment. The company appointed Stephen

Longley, Grant Sparks and Martin

Ford of Australian advisory firm PPB

Advisory.

Among its global prospects, Linc

has been trying to develop the Umiat

oil field in the foothills of the Brooks

Range Mountains. The company

believes it has proved up the prospect

through a recent exploration campaign

and had been looking for partners.

The company recently suspended

an underground coal gasification pro-

gram in Alaska.

—ERIC LIDJI

16 PETROLEUM NEWS • WEEK OF MAY 1, 2016

interests. ML&P already owns one-third

of the field. Hilcorp Alaska, the company

that owns the remaining third of the field,

will replace ConocoPhillips as field oper-

ator.

Following the acquisition, the current

producing section of the field, consisting of

reservoir rocks down to a depth of 7,000

feet, will be owned 56.67 percent by

ML&P, 10 percent by Chugach Electric

and 33.33 percent by Hilcorp. The non-pro-

ducing section of the field, below 7,000

feet, referred to as the deep oil and gas

resources leases, will be 80 percent owned

by ML&P and 20 percent owned by

Chugach Electric.

The utilities want to reduce the cost of

the fuel gas they use in their power genera-

tion plants by obtaining their own gas at

cost from Beluga, rather than buying the

gas at market prices. The utilities had asked

the commission for expedited considera-

tion of their request for approval of the pur-

chase.

Benefits outweigh costsIn an April 21 order agreeing to the pur-

chase, the RCA commissioners said projec-

tions of the remaining useful life of the gas

field, as analyzed by the two utilities, indi-

cate that the benefits to the utilities’ cus-

tomers are reasonably likely to outweigh

the costs of acquisition of the interests in

the field.

“In addition to the gas cost savings that

will flow through to ML&P and Chugach’s

customers, we are persuaded that the acqui-

sition will provide the utilities and their

customers with an increased gas cost stabil-

ity and enhanced gas supply security,

which will qualitatively benefit ML&P and

Chugach customers throughout the remain-

ing life of the BRU (Beluga River unit),”

the commissioners wrote.

“I want to thank the RCA for their swift

consideration and action. I also want to

thank Chugach for working with ML&P

and the Municipality to generate long-term

savings for families and business in the

Anchorage bowl,” stated Anchorage

Mayor Ethan Berkowitz in response to the

commission's approval of the purchase.

“ML&P’s initial investment in the

Beluga River gas field has saved our

ratepayers over $239 million since 1996,”

said ML&P General Manager Mark

Johnston on April 21. “Today’s ruling

ensures long-term financial benefits to

Anchorage businesses and families.”

“Chugach is grateful to the RCA com-

missioners and staff for the time and atten-

tion they have given this matter, and the

quick turnaround of the final decision,”

said Brad Evans, Chugach CEO. “This

partnership will allow us to secure low-cost

and reliable supplies of natural gas for the

benefit of ratepayers. This is an important

ruling that will have benefits for all of our

customers.”

Cost $152 millionThe commission’s order says that the

total purchase price for the Beluga field

assets is $152 million, with ML&P paying

$106.4 million and Chugach Electric pay-

ing $45.6 million. However, the commis-

sioners have allowed the utilities to main-

tain the confidentiality of the complete pur-

chase and sales agreement with

ConocoPhillips. The utilities had argued

that some of the content of the full agree-

ment could compromise ConocoPhillips’

current and future ability to negotiate oil

and gas asset transactions.

ML&P has said that it is going to fund

its share of the purchase with funds accu-

mulated from the utility’s past Beluga gas

sales and some other fund sources.

Chugach Electric plans to use commercial

paper for initial funding, before entering

into a long-term debt financing arrange-

ment.

Due diligenceAs part of their due diligence for the

purchase, the utilities commissioned

Petrotechnical Resources of Alaska and

Ryder Scott to conduct reserves estimates

for the fields, with PRA preparing future

production forecasts. PRA reported likely

total future gas production from the

acquired gas field interests, based on

proven reserves, to be 90 billion cubic feet

through to 2033.

Consultancy firm National Economic

Research Associates prepared an economic

evaluation of the purchase, finding that a

base case for the deal would likely result in

revenue savings through 2033 of $108 mil-

lion for ML&P customers and $31 million

for Chugach Electric customers. Those sav-

ings translate to a net present value savings

of $57 million for ML&P and rate reduc-

tions of 3.5 percent to 4 percent for

ML&P’s customers. Chugach Electric

would see a net present value savings of

$26 million, a figure that would increase to

$33 million if Chugach Electric qualifies

for state small producer tax credits. In a fil-

ing with the commission, Chugach Electric

has said that it needs to complete the

Beluga purchase, with commission

approval, before May 1, in order to be able

to qualify for the tax credits.

Supply stabilityIn addition to gas cost savings and cor-

responding reductions in electricity rates

for their customers, the utilities have

argued that the Beluga gas field deal will

improve their gas cost stability and help

assure their security of gas supply — for at

least some portion of the utilities’ gas needs

it will no longer be necessary to periodical-

ly negotiate new gas supply agreements

and then seek commission approval for

those agreements. The utilities say that they

will also benefit from seats at the table in

future investment and management deci-

sions for the Beluga gas field.

The commissioners have approved an

agreement between the utilities and certain

federal agencies with offices within the

service area of the two power utilities. The

agreement requires ML&P to make certain

filings in connection with incorporating its

Beluga gas supplies into its rate structure,

and states that commission approval of the

Beluga deal will not set a precedent for

future ratemaking or the use of gas sales

funds.

Gas market impactsOne of the more curious aspects of the

Beluga gas field deal arises from the fact

that ConocoPhillips has a gas supply agree-

ment with Southcentral gas utility Enstar

Natural Gas Co. With the transfer of

ConocoPhillips’ interests, two power utili-

ties will end up supplying Enstar with some

of its gas. Enstar has told the commission

that it is comfortable with the new gas sup-

ply arrangements but that it is concerned

about the impact of the Beluga field deal on

the Cook Inlet gas market — some gas pro-

ducers struggle to find markets for their

gas. ML&P and Chugach Electric have

argued that, from a gas supply and demand

perspective, their Beluga field acquisition

can be viewed in the same light as a regular

gas supply agreement and that the utilities

still have significant unmet gas needs.

The state attorney general questioned

the risks and benefits of field ownership

versus contracted gas supplies, and also

questioned the financial arrangement for

the dismantlement of the field infrastruc-

ture when the field reaches the end of its

useful life. ML&P commented that the

commission would have the authority to

monitor the utilities’ provisions for field

dismantlement and restoration.

A disagreementIn a partially dissenting opinion,

Commissioner Stephen McAlpine issued a

statement saying that, while he concurs

with the approval of the purchase of the

Beluga field assets, he takes issue with

some aspects of the manner in which the

utilities sought that approval. McAlpine

questioned why the utilities waited until

March 11 before filing their approval

request and then requested expedited pro-

cessing of the request.

“I would hope that the parties did not

withhold the filing until March in order to

minimize the opportunity that this commis-

sion and others might develop evidence of

a contrary nature,” McAlpine wrote.

McAlpine also took issue with keeping

the details of the purchase and sales agree-

ment confidential, saying that he had seen

nothing in the agreement that warranted

confidentiality. He also questioned the con-

cept of a utility taking advantage of state oil

and gas credits for a reason that appeared

different from the intended purpose of the

credits.

—ALAN BAILEY

continued from page 1

BELUGA PURCHASE

PETROLEUM NEWS • WEEK OF MAY 1, 2016 17

For availability and rates: 907.659.6233brookscampmanager@brooksrangesupply.com colvilleinc.com

Home… Away from Home

When you work in the rugged climate of Alaska’s North Slope, having a comfortable, modern place to rest is a

necessity. At Brooks Camp, each sound insulated room includes a private bathroom, rocker recliner,

cuts that we’ve done and the hundreds we’ve laid off.

We have to have something that gets us closer to being

sustainable both for them and for us.

We want to increase production. We are in a world-

wide down turn. So much of what they are doing has

nothing to do with us. We act in this building as if the

world revolves around us, that if we do the wrong thing

the whole industry is going to cave in. I’ve never been

convinced that that is the case. Legislators might think

the world revolves around them.

(Citing an article in the Calgary Herald) It’s always

interesting to hear a viewpoint from outside this build-

ing. You only hear one thing inside this building.

“You’re going to hurt us; you’re going to hurt us;

you’re going to hurt us.” Then you hear outside stories

where they don’t need this credit anymore or that credit

anymore.

The important thing in Cook Inlet is to make sure

there is gas well into the future. That’s done. We threw

a lot of money into Cook Inlet. Then in Prudhoe, one of

the important things is we have independents operating

because that is who is going to be finding the new oil.

So how do we go into this taking care of these two

things? Well Cook Inlet is fine. There’s a lot of gas in

Cook Inlet.

In Prudhoe it’s to keep independents operating and

finding more oil. When you look at the history of the

evolution of an oil field, that’s where we are now: com-

panies like BP sell off their marginal assets and the

independents come in and take the smaller fields. Good

for them if they find a big one, that people overlooked

or the research wasn’t done.

And continue exploring the frontier basins. That’s

also very important. I think the frontier basins are

potential game changers for in-state gas. If you find gas

in good commercial quantities whether it’s Ahtna in the

Glennallen area or Doyon in the Nenana basin, those

could be game-changers for costs and availability for

gas throughout the state, and reaching out to rural

Alaska, too.

Petroleum News: So what kind of bill would you liketo see emerge from the Legislature when it’s done, be itHB 247 or SB 130?

Guttenberg: First of all it has to be fair to both the

state and the industry. They have committed to projects

right now they are already on the hook for. I’m not sure

it’s fair to pull the rug out from under them, but certain-

ly to shut off credits into the future that aren’t commit-

ted yet. If they are in place, they will be used.

My problem is the state’s entire focus has been

wrong. It has not been looking after its interest first,

then the industry’s interest. I live in Fairbanks. The

price of oil is high. Even when it’s low it’s high. The

price of a Btu it’s high compared to Southcentral and in

rural Alaska; it’s significantly higher. So there is a part

of it that need to make sure that Alaska is taking care of

Alaskans, not to the exclusion of industry, but at the top

of the list.

We need to make sure industry has opportunities to

produce as much as they can. They have a business

plan that we don’t see. We don’t get to see their internal

business plan about how much they want to invest, how

much they can invest, how much risk they want to take.

We don’t get to see that. We have to figure out what’s

in the best interest of the state. I think between us and

the industry, part of that is a stable transparent process

that goes forward and fits in all the modeling.

There are other ways to do it than the way we have.

We have so many different tax regimes and so many

different players, that one size does not fit all. That’s

problematic. There are too many moving gears to do

one thing and have everybody be happy. You don’t

want to pick winners and losers.

Petroleum News: Speaking of gears, let’s switch toAKLNG. You’ve received updates on the project fromthe partners and the governor had an update sayingthings would be moving along with more caution.What’s your take on things right now?

Guttenberg: You know people plan for these spikes,

the long-term approach to dealing with this stuff. The

state always has a very narrow view, a very short-term

view — maybe two years in this building because it’s

always two years until the next election. I’ve never

really done that but it’s out there. We were told before

that there was going to be I wouldn’t say a pause but

the need to take a deep breath right about now, that

there was going to be a slowdown because things need

to catch up regardless of the price. They said this when

things were hot and heavy.

From what I understand from the AKLNG folks,

there is a lot of stuff in the works. If you are working

on the study, there is a lot building up to the study and

then there is a long lag. We’ve got partners and they are

interested in getting to FEED, getting to a point where

the next decision making process is.

It’s expensive. All of these decision-making process-

es are staged-gated. They tell us take your time. Don’t

be anxious. Don’t rush. We’ll get there and we’ll make

the right decision.

Petroleum News: As with taxes, you’ve been aroundfor a lot of the discussions on a gas line. Do youbelieve a gas line will come on line?

Guttenberg: Yes. I do. There is too much product.

There are too many hydrocarbons up there. We are a

stable environment. We are not shooting at the pipeline.

We are not pulling executives off the pickup trucks. I

think this has always been the savings account for a lot

of these businesses, for the producers. They always

come back here. When there is a window to do some-

thing that is high risk, they’ll go out and do it. They

always come back here because of the place that it is.

They know what’s here. They have had basin control

for a long time. They control TAPS. They have com-

plete control of the product from bay to port. This is a

safe place for them and they are here now when they

are leaving other places. I think part of it is it’s safe. We

are giving away stupid amounts of money in credits and

they are going to get it as long as they can. I think

when the time comes and the time is right to start a

line, they will do it again. They will build another

pipeline. Even if we started going off a hydrocarbon

economy, we’ll still need hydrocarbons. It’s not like we

are going to valves off tomorrow.

Petroleum News: What do you think it would meanto have two pipelines running north and south? Do youthink people will look at it as this pipeline or thatpipeline or two pipelines?

Guttenberg: I think the most important thing it does

for the state is that it brings a stable in-state use of nat-

ural gas.

Fairbanks got a 48-inch oil line running through

town. We never got any benefit from that. The econom-

ic growth difference between Fairbanks and Anchorage,

which has gas, prices were dirt cheap when we were

paying big bucks. When prices skyrocketed, they were

paying a little bit more but we were paying $5 a gallon

for oil. Think about the state having disposable gas

because it’s not all going to markets outside.

And jobs. I advocate not so much the construction

jobs but the long-term processing facility jobs, the jobs

you retire from, the maintenance jobs and facilities

management, running the compressor stations. All those

facilities. Even now, 40 years after we started construc-

tion, we are still saying the industry doesn’t have

enough qualified Alaskans to do it. That’s trash talk

from the industry. That’s how they have managed the

workforce. There are not enough engineers so the

industry is trying to tell the Legislature to finish the

engineering building (at UAF) because there aren’t

enough Alaskan engineers. Every Alaskan that goes

through the school of engineering at UAF or UAA has

a job as soon as they get out.

Nobody knows cold weather better than a kid grow-

ing up here. You see these employees getting off the

plane or the bus and it’s 20 below and they want to go

home. Alaskans are going to the store in their shorts.

Kids are wearing flip-flops. The difference in attitude

toward working in this environment is phenomenal

between bringing people up from Outside who have no

idea what to do. I think the industry has mismanaged

the Alaskan workforce.

Petroleum News: You talk about working on thepipeline in committee hearings and on the floor. Wouldit be fun to go back there?

Guttenberg: You know I joke about it all the time. A

lot of times it is my reference point for the positions I

take. You know I’m too old and too heavy to be throw-

ing skids anymore. I think about it.

My job was a young man’s job. I think about the old

guys working slowly. I had some crews taking care of

different facilities. One scenario I had three or four

guys working their butts off, just running around every-

where; then I had another facility with an old guy, pok-

ing along.

A supervisor came in and said you need to get rid of

that guy. I said let’s go look at the module units, and I

said that one is always dirty and that his is never dirty.

They are bringing equipment in and out, they are test-

ing; there is water on the floor; there are boxes stacked

up and his place was never dirty. He pokes along, takes

care of his business. Over there with the young guys,

they are all out of control. The place is a mess.

When you think about what old hands bring to the

game is: Don’t sweat the little stuff. He’ll get to it. I

think about that in this building, too. l

continued from page 5

GUTTENBERG Q&A“We have so many different tax regimes and somany different players, that one size does not

fit all. That’s problematic.” —Rep. David Guttenberg, D-Fairbanks

department, it ranks among the highest

per capita emitters on the planet.

A new national inventory had some

troubling trends for McKenna and

Canada’s ability to meet its commitment

to reduce emissions 30 percent below

2005 levels by 2030.

The latest statistics show Canada gen-

erated 732 million metric tons of carbon

dioxide and other equivalents in 2014, up

20 percent from 1990, but 15 million met-

ric tons below 2005 levels.

Emissions actually dropped in 2009

due to the global economic downturn, but

have risen 5.2 percent since then, with the

energy sector — upstream and down-

stream — making up 81 percent of the

2014 levels.

Industry production, emissions up“In 2014, emissions from mining and

upstream oil and gas production were

more than twice their 1990 values,” the

report said. “This is consistent with a 91

percent increase in total production of

crude oil and natural gas over the period,

largely for exports, which have grown by

over 200 percent.”

Among the provinces, Ontario was

down 19 percent in the 2005-14 period,

but four were up, led by Alberta’s 17 per-

cent increase.

“You’re absolutely right, emissions are

going up and they need to go down,”

McKenna told reporters after being

grilled for two hours by the House of

Commons environment committee.

She said that turning the trajectory

around poses an enormous task.

Members of the committee wanted to

know how McKenna would protect

Canadian businesses from unfair foreign

competition under her preferred option of

carbon pricing and why it has failed to

eliminate subsidies for the fossil fuel

industries.

The best McKenna could do was

explain how complicated the issues are

and assure members and outline the

efforts being made by federal-provincial

working groups to reach a national strate-

gy for tackling climate change.

Carbon tax vs. capture-and-storageShe then prepared to visit

Saskatchewan’s flagship Boundary Dam

carbon capture-and-storage project which

Premier Brad Wall holds up as the alterna-

tive to the Canadian government’s insis-

tence on a national carbon price, which it

proposes to collect either through a tax or a

cap-and-trade system.

But McKenna carefully sidestepped

questions on whether the Trudeau govern-

ment is prepared to impose a mandatory

price over the objections of provincial gov-

ernments.

She said a discussion about the best

means of putting a price on carbon is taking

place across Canada.

“I think this is an opportunity for

Canada,” she said. “When you put a price

on carbon, what you do is price pollution,

something we want less of.”

When provincial and territorial premiers

agreed in March to study carbon pricing

“mechanisms,” Wall — recently re-elected

in a landslide victory — said his preference

is for carbon capture-and-storage.

McKenna conceded that thinly populat-

ed regions, especially in Canada’s North,

count heavily on diesel fuel for their power

and would be penalized even more if they

faced a carbon tax or cap-and-trade system.

However, she noted that Ontario,

Quebec, British Columbia and Alberta —

the four most populous provinces — have

either introduced or are about to adopt

some form of carbon price.

Given the different economic profiles of

provinces and territories, the Canadian

government must choose to act on a cli-

mate change plan in the “most cost-effec-

tive way,” McKenna said.

So, before setting the stage for a show-

down with Saskatchewan, she said her

objective is to discuss “more broadly how

we work together” on lowering greenhouse

gas emissions.

Environmental protection spendDespite McKenna’s apparent preference

for a soft-touch at this stage, the Trudeau

government plans to spend more than C$7

billion over the next two years on environ-

mental protection, targeting expanded pub-

lic transit, fixing aging water and waste-

water infrastructure and supporting provin-

cial efforts to reduce greenhouse gas emis-

sions.

Trudeau has also hinted that unless the

provinces and territories can agree this fall

to a national plan his government is ready

to assert its role.

Finance Minister Bill Morneau has

characterized the new government as a

“champion of clean growth and speedy

transition to a low-carbon economy.”

Although the provinces and territories

have agreed to lay the groundwork for a

pan-Canadian strategy on clean growth and

climate change, they have shown little or

no sign of moving towards a consensus on

whether there should be a national floor

price for carbon.

Morneau, who rejects the need to

choose between a strong economy and a

clean environment, insisted Canada must

claim a leadership role on the issue if it

hopes to make a valid global case for devel-

oping its oil sands and natural gas

resources.

Finance Canada said “resources will be

allocated to those projects that yield the

greatest absolute greenhouse gas reduc-

tions for the lowest cost.”

To that end, the government will inject

money into its venture-capital agency,

Sustainable Development Technology

Canada, and Natural Resources Canada to

boost research and commercialization of

clean technology. l

18 PETROLEUM NEWS • WEEK OF MAY 1, 2016

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Canada defines upstream emissions The Canadian government has quietly defined what constitutes upstream green-

house gas emissions which will now be part of environmental reviews for all major

oil and gas projects, such as the oil sands and LNG.

Without any announcements or releases, the Department of Environment and

Climate Change said in the government’s official newspaper that extraction, process-

ing, handling and transportation of petroleum could all be factored into the equation.

“Upstream includes all industrial activities from the point of extraction to the proj-

ect under review,” said the government notice.

Environment Minister Catherine McKenna and Natural Resources Minister Jim

Carr said early this year that the federal government would change its review of major

energy projects to put more emphasis on greenhouse gas emissions.

The details have been the subject of controversy as the government works with the

provinces and territories to draft a pan-Canadian strategy for combating climate

change.

The new definition calls for a quantitative estimation of GHG emissions released

from production associated with a project, including “the production of steam or

hydrogen used by upstream facilities,” which involves the extraction and processing

of oil sands bitumen and the production of natural gas as feedstock for LNG.

The second element requires a discussion of a project’s potential impact on

Canadian and global GHG emissions.

Erin Flanagan, director of federal policy at the Pembina Institute environmental

think tank, told reporters that the government is now asking the right questions,

including taking into account gas venting and flaring.

Kathryn Harrison, a political science professor at the University of British

Columbia, said answers to a number of questions will be required before it is possible

to tell whether any project would get final approve under the new rules.

She said it is not clear how specific the emissions will be to operations and opera-

tors.

In a related matter, Suncor Energy, Canada’s largest oil and gas producer, said it

plans to disclose in July how it proposes to compete in a lower-carbon future at the

same time ExxonMobil and Anadarko Petroleum are coming under pressure from reg-

ulators and shareholders to provide more details of their climate change strategies.

—GARY PARK

continued from page 1

CLEANING UP

The Rules CS, dated April 25, had not yet had a com-

mittee hearing when this issue of Petroleum News went

to press April 28.

An analysis by the Legislature’s consultants, enalyti-

ca, which appeared April 27, compared features of the

Rules CS to the status quo and to the House Finance CS.

Cook InletCredits for Cook Inlet oil and gas were enacted by the

Legislature when Cook Inlet had such a large foreseeable

gap in natural gas volumes that utilities were discussing

the importation of liquefied natural gas.

Cook Inlet oil also benefitted from the credits, which

enalytica called unsustainable in its analysis, with 25

percent net operating loss credit, 20 percent qualified

capital expenditure credit and 40 percent well lease cred-

it resulting in up to 65 percent government support for

spending. The state receives royalties from Cook Inlet oil

and gas, but no production tax from oil and very little

from gas.

All credits currently in statute for Cook Inlet continue

through 2016 under the Rules CS. To receive any Cook

Inlet credits from 2017 on, a company must have oil or

gas production in Cook Inlet by the end of 2016. The

continued from page 1

HB 247

see HB 247 page 19

A true milestoneCD5, described by Olds as a true mile-

stone for ConocoPhillips, has involved an

initially sanctioned development involv-

ing the drilling of 15 wells, some of

which are production wells and some of

which are injectors. Currently 10 wells

are in operation and drilling of the 11th

well is underway, Olds said. So, the

newly approved expansion will more

than double the scale of the operation at

the first commercial drill site in the NPR-

A.

ConocoPhillips is using horizontal

drilling and hydraulic fracturing at CD5

and has seen encouraging results. Olds

commented that, although the drilling and

fracking techniques are modeled on those

used in shale oil plays in the Lower 48,

the oil reservoir at CD5 is conventional,

with the fracking used to stimulate oil

production and to connect different dis-

tinct sand bodies within the reservoir for-

mation. The $1.1 million initial develop-

ment at CD5 is on target to achieve its

projected annual average oil production

rate of 16,000 barrels per day, Olds said.

Scott Jepsen, ConocoPhillips vice

president external affairs, told Petroleum

News that the expanded CD5 develop-

ment is moving ahead, despite the current

low price of oil, because ConocoPhillips

had allocated capital to new develop-

ment, including the CD5 development, in

Alaska.

Olds said that the fact that CD5 had

come in ahead of schedule and below

budget had supported the argument that

ConocoPhillips should invest more capi-

tal in its NPR-A program.

Sequential developmentOlds characterized the CD5 develop-

ment as part of a “level-loaded sequential

development strategy” in NPR-A. In fol-

lowing this strategy, ConocoPhillips is

stepping out west from the Alpine oil

field in the Colville River unit, develop-

ing and bringing on line one drill site at a

time, and hooking each drill site back to

the Alpine central processing facility.

Having put CD5 into operation in

October 2015, in November

ConocoPhillips sanctioned the Greater

Mooses Tooth 1 development, a drill site

the same size as CD5 and about eight

miles to the south-west. That will be fol-

lowed by Greater Mooses Tooth 2, eight

miles further southwest.

GMT-2, which is currently being per-

mitted and going through phase two front

end engineering, will have a slightly larg-

er gravel pad than the other two sites and

will likely cost somewhere in excess of

$1 billion to develop. And then there is

the potential for further development in

ConocoPhillips’ Bear Tooth unit, to the

northwest of GMT-1 and GMT-2

Both GMT-1 and GMT-2 have the

potential for the drilling of 33 wells, with

the development of each site involving

peak employment of about 700 job posi-

tions. GMT-1 is slated to come on line in

late 2018, while GMT-2, if approved,

should see first production in late 2020.

“The key thing here is we’re leverag-

ing the existing infrastructure, the pro-

cessing capability, the camps, the power,

the communications package, Alpine cen-

tral facilities, so we can keep a very small

footprint for CD5 and projects like GMT-

1 and GMT-2,” Olds said.

And in this sequential development

process, the learnings from one drill site

can be applied to later developed sites;

permitting of different sites can be con-

ducted in sequence; and the develop-

ments, by being carried out at different

times, have less impact than otherwise on

local resources and on local communities.

Olds said that the total combined area

of the CD5, GMT-1 and GMT-2 sites

amounted to just 185 acres, an area that

constitutes 0.0008 percent of the 22.8

million total acreage of NPR-A.

Alpine discovered 1994The Alpine field, which formed the

starting point for the chain of develop-

ments extending into NPR-A, was dis-

covered in 1994 and went on line in late

2000, with production from two initial

drill sites, CD-1 and CD-2, in the Colville

Delta unit. The development of the CD-3

and CD-4 drill sites followed in 2006.

NPR-A oil and gas leasing that started

in 1999 led to a significant drilling pro-

gram, to the west of those Alpine sites,

for ConocoPhillips and its partners.

“We’ve had a very active program

within the NPR-A coming out of those

lease rounds,” Olds said. “We’ve drilled

30 exploration wells, and 28 of those

have been operated by ConocoPhillips.”

Two of the wells, the Lookout 1 and

Rendezvous 2 wells, drilled in 2001,

proved to be the discovery wells for

GMT-1 and GMT-2. This year

ConocoPhillips has drilled three explo-

ration wells in NPR-A, Olds said.

While the earlier Colville Delta devel-

opments were on state of Alaska land,

CD5, which is also in the Colville River

unit, is within the boundary of the NPR-

A. Kuukpik Corp., the Native corporation

for the nearby village of Nuiqsut, owns

the surface land at CD5, with Arctic

Slope Regional Corp. being a primary

subsurface land owner for

ConocoPhillips’ NPR-A developments.

Community collaborationOlds particularly emphasized the

importance of the strong collaboration

with the North Slope communities, in par-

ticular Nuiqsut and ASRC, in the compa-

ny’s NPR-A initiatives. Without that col-

laborative environment, ConocoPhillips

would not be able to conduct all of its

activities in the area. For example, the sit-

ing of a major bridge across the Nigliq

channel of the Colville River involved

working for several years with the elders

and the community, to ensure that the

bridge location would have a minimal

impact on subsistence hunting and gath-

ering.

“So that’s the type of collaboration

that we really need, to make sure that we

go ahead with these developments and

have the least impact to their environ-

ment, as well as to the traditional way of

life,” Olds said. l

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CD5 EXPANSION

Rules CS repeals the 40 percent well lease credit in 2017,

with a 30 percent capital credit and a 25 percent net oper-

ating loss credit remaining. The NOL credit terminates at

the end of 2017, leaving only a 20 percent capital credit,

which terminates at the end of 2018.

The Rules CS changes for Cook Inlet, enalytica said,

provide time “for current companies to seek to become

cash self-sustaining.”

A summary of changes by the Rules Committee says

the legislative working group is included in the CS, but

with tighter language, requiring that a new Cook Inlet

tax regime be in place effective Jan. 1, 2019, when the

last of the credits expires.

North SlopeFor the North Slope, the 35 percent net operating loss

credit ends this year for companies producing more than

20,000 barrels per day and for companies with no pro-

duction. For companies producing up to 20,000 bpd on

the North Slope by the end of this year, the 35 percent

NOL continues through 2019.

In place of the NOL, companies in pre-production

development or with more than 20,000 bpd of produc-

tion will be able to carry forward lease expenditures they

were unable to deduct in the current year, which has the

effect, House Rules said, of hardening the 4 percent

gross minimum floor, because “unlike credits, deduc-

tions cannot reduce production tax value before the gross

minimum tax.”

On the impact of changes in refundable credits, ena-

lytica said the Rules CS ends refundable credits in Cook

Inlet in 2019 and in 2020 on the North Slope, allowing

companies which have “major, capital-intensive proj-

ects” the time to “find substantially more equity capital

or bring in working interest partners” to proceed with or

complete projects.

Gross value reduction“The GVR reduction for new oil,” House Rules said,

“goes from a timeless benefit under current statute, to a

10-year benefit once regular production starts.”

The House Finance CS allowed the GVR only for five

years from first production, or until Jan. 1, 2021. The

Rules CS allows the GVR benefit for 10 years from first

production or until Jan. 1, 2026.

The five-year limit effectively eliminates much of the

GVR benefit, enalytica said, with major negative

impacts on recently sanctioned eligible developments.

The 10-year limit in the Rules CS “mitigates this signif-

icantly,” enalytica said. In a previous analysis the con-

sultants said that a 15-year limit would preserve almost

all of the status quo value.

House Rules also said that once “new” oil graduates

into normal oil after 10 years “it is taxed as any other

normal oil and is eligible for the sliding scale per-barrel

reduction, like all normal oil.”

Previous versions have included a provision prevent-

ing the use of GVR from increasing the amount of a loss,

and House Rules said its CS retains that provision.

Other provisionsThe CS requires the Alaska Oil and Gas Conservation

Commission to determine the start of regular production

of new oil, effective Jan. 1, 2017. The Rules CS also lim-

its refunds to $85 million per company per year, but only

for companies producing in 2016 and only for companies

producing less than 20,000 bpd. Refundable credits end

in Cook Inlet in 2019 and in 2020 on the North Slope.

Refunds to companies are prioritized for companies

with at least 80 percent Alaska hire.

The Department of Revenue will make public the

name of a company receiving refunds for credits, and the

amount.

Municipal producers may only earn credits for tax-

able production.

Tax certificates for work done in 2017 and forward

“will no longer be transferable to entities for application

against production tax liability” but can be assigned to

other parties for cash.

Interest rates increase from 3 points above the federal

discount rate, simple interest, to 5 percent above, com-

pounded.

—KRISTEN NELSON

continued from page 18

HB 247The Rules CS changes for Cook Inlet, enalytica

said, provide time “for current companies toseek to become cash self-sustaining.”

recycled gas.

Major working interest owners at

Point Thomson are ExxonMobil, BP

Exploration (Alaska) and ConocoPhillips

Alaska.

ResourceExxonMobil said the reservoir at Point

Thomson holds an estimated 8 trillion

cubic feet of natural gas and associated

condensate, representing 25 percent of the

known natural gas on the North Slope. The

company said potential future development

is dependent on factors such as business

considerations, investment climate and fis-

cal and regulatory environment.

Major North Slope producers, with

ExxonMobil in the lead, are working with

the state on an Alaska liquefied natural gas

project which would be based primarily on

natural gas from the Prudhoe Bay field, but

also include natural gas from Point

Thomson.

“The successful startup of Point

Thomson demonstrates ExxonMobil’s

project management expertise and high-

lights its ability to execute complex proj-

ects safety and responsibly in challenging,

remote environments such as the North

Slope in Alaska,” Neil Duffin, president of

ExxonMobil Development Co., said in a

statement.

The company said ExxonMobil and

working interest owners at Point Thomson

invested some $4 billion in the develop-

ment of production facilities at the field

through the end of 2015, with some 100

Alaska companies working on the project.

“Our strong partnership with Alaskans

and Alaska-owned companies played a crit-

ical role in helping to complete this major

project,” Duffin said. “It further reinforces

our commitment to pursuing the develop-

ment of Alaska’s natural gas resources.”

A long struggleThe state has been struggling to get

Point Thomson brought online for years.

The first leases in the field date from

1965 and the Point Thomson undefined oil

pool was discovered in 1977 by Exxon at

the Point Thomson Unit No. 1 well and

confirmed in 1978 and 1979 by the Point

Thomson Unit No. 2 and No. 3 exploratory

wells. The Point Thomson area was unit-

ized in 1977.

By 1983, Exxon and other companies

had drilled 17 wells.

There were technical, economic, legal

and regulatory challenges to development,

but the issue came down to prioritizing

condensate vs. prioritizing natural gas pro-

duction.

For years the state deferred pressure on

the Point Thomson owners to develop the

field because there was no way to get

resources, either oil or gas, to market.

Badami, about midway between

Prudhoe and Point Thomson, came online

in 1998, providing an oil pipeline covering

half the distance. A connecting line from

Badami to Point Thomson was built as part

of the current development project.

There is still no gas pipeline to take the

field’s major resource to market, but one

would be built as part of the proposed

Alaska LNG project, if that development

moves forward.

2005 defaultIn 2005 the Alaska Department of

Natural Resources put the unit into default

and terminated it in 2006, a decision which

the companies appealed. Alaska Superior

Court sided with the companies, sending

the issue back to DNR, which ultimately

rejected a new plan of development in

2008.

The working interest owners appealed

that decision to Superior Court, which

sided with the companies.

The state petitioned the Alaska Supreme

Court for review, halting the Superior

Court litigation.

Meanwhile, ExxonMobil gained per-

mission from the state to drill the first new

wells at the unit in several decades, PTU

No. 15 and PTU No. 16.

2012 settlementA court-ordered settlement was reached

in 2012, and the state and ExxonMobil cre-

ated a timetable for bringing Point

Thomson online by early 2016. The settle-

ment included three alternatives for expan-

sion beyond the 10,000 bpd of condensate

in the settlement.

The first alternative is sanctioning of

major gas sales by June 2016. That alterna-

tive is off the table as the pre-front end

engineering and design phase of AKLNG is

not scheduled to be complete before year

end. The project partners — ExxonMobil,

BP, ConocoPhillips and the state — will

then determine whether to proceed to the

front end engineering and design phase,

which will have to be concluded prior to a

project sanctioning decision.

The second option is expanding liquids

production to at least 30,000 bpd by 2019.

The third option is integrating Point

Thomson and Prudhoe Bay operations to

improve recovery.

When ExxonMobil applied to the

Alaska Oil and Gas Conservation

Commission for pool rules for Point

Thomson it said it would prefer to transi-

tion from the present phase, the initial pro-

duction system, directly into exporting nat-

ural gas.

ExxonMobil told the commission it was

skeptical about expanding condensate pro-

duction, with major impediments including

limited condensate recovery and the high

cost of the facilities and wells.

Integrating Prudhoe Bay and Point

Thomson would involve using Point

Thomson gas for Prudhoe Bay field opera-

tions. ExxonMobil said while that could

accelerate Point Thomson gas sales by two

years, that acceleration would be unlikely

to justify the cost of implementation. l

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continued from page 1

POINT THOMSON

By the time water, fuel, material and

supplies have been loaded, it will likely be

around May 20 when the drilling crew

starts to drive casing, with actual drilling

starting around May 25, Webb said.

Currently a single well at the Julius B.

platform is producing natural gas from

Furie’s offshore Kitchen Lights gas field.

The gas is being delivered via a subsea

pipeline, an onshore processing facility

and the Kenai Peninsula gas pipeline infra-

structure for power generation by Homer

Electric Association on the peninsula.

Under the current Kitchen Lights plan

of operations, Furie has said that it will

complete two new development wells this

year, and two more wells between April

2017 and October 2018. A new gas supply

agreement with Enstar Natural Gas Co.,

scheduled to go into operation in 2018,

requires that Furie drill and prove out two

new Kitchen Lights wells in 2016. Furie

also plans some new exploration drilling in

the Kitchen Lights unit using the Randolf

Yost rig.

—ALAN BAILEY

continued from page 1

FURIE DRILLING