l exploration & production trucking cosmo oil · l exploration & production l economy l...
TRANSCRIPT
l E X P L O R A T I O N & P R O D U C T I O N
l F I N A N C E & E C O N O M Y
l F I N A N C E & E C O N O M Y
page5
Q&A: Meyer says budget big issue;LNG plan allows state to partner
Vol. 19, No. 49 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of December 7, 2014 • $2.50
The Arctic ringed seal, listed as threatened under the EndangeredSpecies Act, has a life style dependent on sea ice. See story on page 13.
Critical habitat proposedN
ATI
ON
AL
MA
RIN
E FI
SHER
IES
SERV
ICE Trucking Cosmo oil
Fort Worth company planning 33-well onshore program to target offshore oil
By ERIC LIDJIFor Petroleum News
BlueCrest Energy Inc. is permitting a 33-wellprogram to develop the offshore
Cosmopolitan field from an existing onshoredrilling pad near the community of Anchor Point.
A local subsidiary of the Fort Worth, Texas-based independent would begin drilling this com-ing March at the Cook Inlet oil and gas field in thesouthern Kenai Peninsula.
An initial five-year development program callsfor drilling 20 directional production wells intovarious oil-bearing formations, 10 directionalwater injection wells and as many as three onshore
disposal wells. The company would use Parker rig267 or an equivalent rig for drilling operations.BlueCrest expects initial production of 5,000 bar-rels per day in early 2016, increasing to 17,000 bpdby the fifth year of operations.
The expected commercial life of the project iscurrently 30 years.
The program calls for trucking oil to the Tesoro
Should BlueCrest ever decide to producenatural gas at Cosmopolitan, it wouldlikely reverse the proposed Enstar line.
see COSMO OIL page 19
Some big challengesASRC CEO: communities intent on developing economy and preserving culture
By ALAN BAILEYPetroleum News
While benefiting financially from the bountyof the oil industry, the Native people of
Alaska’s North Slope hold proudly to their tradi-tional culture and their subsistence way of life.However, the North Slope communities face chal-lenges from people who do not live in the Arcticbut who covet the Arctic, either as part of someorganizational agenda or some national agenda,Rex Rock, president of ASRC, Arctic SlopeRegional Corp., told the Resource DevelopmentCouncil’s annual conference on Nov. 19. ASRC isthe Native regional corporation for the NorthSlope.
The challengesRock said that challenges are coming from
environmental organizations “and their never-end-ing lawsuits,” from the federal government “and
Rock said that challenges are coming fromenvironmental organizations “and theirnever-ending lawsuits,” from the federal
government “and its never-endingoverreach,” and from the development ofArctic policies without the involvement of
Arctic residents.
see BIG CHALLENGES page 20
Jittery mood in CanadaAll sectors brace for prolonged oil slump; one voice suggests US$30 oil possible
By GARY PARKFor Petroleum News
The easy part of the debate over the future ofoil prices seems to have been resolved in
Canada.From all angles — producers, governments and
analysts — there is a strong consensus that theslump will be lengthy.
What they can’t agree on is how low prices willslide and what the impact will be on upstreamoperations and public revenues.
But one of the most trusted voices in theCanadian oil patch has caused a stir by forecastingthat the industry faces a year of “tough sloughing,”with many projects postponed, as prices spiraldown to US$30 per barrel, then working their way
back to stabilizing around US$70-US$75.Murray Edwards, who has joined the ranks of
billionaires through his astute investments andguidance of companies, including in his role aschairman of Canadian Natural Resources, said thateven if prices drop below the US$35 level that was
“Right now we have more supply than wehave demand. The market now is going to
find a price which best reflects what itcosts to produce a barrel of oil ... nothing
solves low prices like low prices.” —Murray Edwards, Canadian Natural
Resources
see JITTERY MOOD page 19
FNG signs up with Hilcorp for Fairbanks gas demand
As part of the sale of its liquefied natural gas terminal toHilcorp Alaska LLC, Fairbanks Natural Gas LLC is entering asupply contract with a Hilcorp midstream subsidiary.
The Regulatory Commission of Alaska initially rejected thegas sales agreement betweenFairbanks Natural Gas andthe Hilcorp-subsidiaryHarvest Alaska LLC on tech-nical grounds. Specifically,Fairbanks Natural Gas forgotto list which customerswould be impacted by thedeal. After Fairbanks NaturalGas clarified that the dealwould impact all 1,120 of itscustomers, regulators released the gas sales agreement for publiccomment.
The 10-year contract would start at a delivered price of $15per thousand cubic feet. The price would increase annually by 2percent starting in the third year and would be adjusted to thelowest price available in the Fairbanks market starting in the
Yukon dealt setback by SupremeCourt; back to Peel River start
First Nations and environmentalists are celebrating a his-toric Yukon Supreme Court ruling that the territorial govern-ment did not respect an agreed-on planning process in revisingthe proposed land use for 26,000 square miles of wilderness.
The impacts on the natural resource development future ofthe Yukon are unclear, while the government ponders anappeal.
In a written verdict, Justice Ron Veale rebuked the Yukongovernment for its decision almost four years ago to slash theamount of protected land to 29 percent from 80 percent, withexisting mineral claims remaining valid.
Under the revisions, 27 percent of the Peel River watershedarea — which has a drainage basin fed by many rivers —would be open to most types of development, while 44 percentwould be available for limited mining.
Yukon Environment Minister Currie Dixon said at the timethat beyond the protected area, the government would intro-duce a new regime that would allow “very limited develop-ment.”
Kate White, an opposition member in the territorial legisla-ture, accused the government of turning its back on Yukonersby choosing a “path of confrontation and litigation as opposedto planning an economic future for the territory.”
“FNG feels confident thatexpansion of LNGcapacity at Point
MacKenzie will happenfaster with Harvest.”
—Fairbanks Natural Gasattorney Mark Figura
see SUPPLY CONTRACT page 18
see COURT RULING page 18
2 PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014
Petroleum News North America’s source for oil and gas newscontents
8 OPEC keeps output on hold despite prices
6 Alaska and the global Arctic agenda
4 First Nations eager to take LNG role
4 ASAP public scoping report released
7 Walker, Mallott inaugurated in Juneau
10 Kinder Morgan red faced
Company loses legal fight, retreats early from explorationof alternate route for Trans Mountain expansion; GPS coordinates wrong
GOVERNMENT5 New Senate president: Budget big issue
Meyer says budgeting done on $105 oil, cuts will needto come faster; LNG plan puts state further along, allows it to partner
7 Miller’s new well falls short of hopes
RU-9 drilled from Osprey platform in Alaska’s Cook Inlet;company reports closing sale of legacy assets in home state of Tennessee
FINANCE & ECONOMY
PIPELINES & DOWNSTREAM
Trucking Cosmo oil
Fort Worth company planning 33-well onshore program to target offshore oil
Some big challenges
ASRC CEO: communities intent on developing economy and preserving culture
Jittery mood in Canada
All sectors brace for prolonged oil slump; one voice suggests US$30 oil possible
ON THE COVER
13 Ringed seal critical habitat proposed
NMFS wants to designate the entire U.S. Beaufort and Chukchi seas and the northern Bering Sea as critical to the species’ survival
ENVIRONMENT & SAFETY
11 Canada turning green
Survey shows renewable energy employs more thanoil sands, but GHG emissions still rising; think tank calls for government support
14 ANS production up 3% month over month
North Slope crude oil averages 537,644 bpd in November; Cook Inlet crude averages 18,836 bpd in October, up 2.3% from September
14 State issues Peninsula sale final BIF
Decision covers 10 years of areawide oil and gas leasesales, includes significant new information based on field, subsurface work
ALTERNATIVE ENERGY
EXPLORATION & PRODUCTION
12 Royalty relief used sparingly in Alaska
10 Changes to GHG reporting for industry
11 Legislators get Parnell admin LNG update
15 BSEE facility conducts response testing
LAND & LEASING
NATURAL GAS
D I V E R S I F I E D D E V E L O P M E N T A N D S U P P O R T S E R V I C E S I N T H E A R C T I C & B E Y O N D
U I C U M I A Q . C O MUMIAQ Anchorage 6700 Arctic Spur RoadAnchorage, AK 99518 P: (907) 677-8220 F: (907) 677-8286
UMIAQ BarrowP.O. Box 955
Barrow, AK 99723 P: (907) 852-7447F: (907) 852-6488
Computing Alternatives
Information Technology Professionals
Ph| 907-644-4522Fx| 907-644-4523
[email protected] Silverado Way, Ste. I
Anchorage, AK 99518
• Custom Web, Desktop, &Mobile apps
• IT Business Analysis• Database Design & Modeling• Microsoft Server Maintenance
• SQL Server DatabaseAdministration
• Oil & Gas Risk Assessment and Regulatory Compliance Tools
• Revenue Taxation• Hospitality Systems
WE OFFER THE FOLLOWING SOLUTIONS TO PUBLIC AND
PRIVATE SECTORS
FNG signs up with Hilcorpfor Fairbanks gas demand
Yukon dealt setback by SupremeCourt; back to Peel River start
PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014 3
Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status
Alaska Rig StatusNorth Slope - Onshore
Doyon DrillingDreco 1250 UE 14 (SCR/TD) Prudhoe Bay Y-14C BPDreco 1000 UE 16 (SCR/TD) Prudhoe Bay MPI-12 BPDreco D2000 Uebd 19 (SCR/TD) Alpine CD4-213 ConocoPhillipsAC Mobile 25 Kuparuk 2M-36 ConocoPhillipsOIME 2000 141 (SCR/TD) Kuparuk 2F-21 ConocoPhillips
Kuukpik 5 Prudhoe Bay Available Nabors Alaska DrillingAC Coil Hybrid CDR-2 Kuparuk 2F-18 ConocoPhillipsDreco 1000 UE 2-ES (SCR-TD) Deadhorse, under contract to Repsol Repsol for winter explorationMid-Continental U36A 3-S Prudhoe Bay AvailableOilwell 700 E 4-ES (SCR) Prudhoe Bay AvailableDreco 1000 UE 7-ES (SCR/TD) Kuparuk ConocoPhillipsDreco 1000 UE 9-ES (SCR/TD) Kuparuk ConocoPhillipsOilwell 2000 Hercules 14-E (SCR) Prudhoe Bay AvailableOilwell 2000 Hercules 16-E (SCR/TD) Deadhorse, under contract to Brooks Range Petroleum Brooks Range Petroleum at Mustang Emsco Electro-hoist-2 18-E (SCR) Prudhoe Bay StackedEmsco Electro-hoist Varco 22-E (SCR/TD) Prudhoe Bay StackedTDS3Emsco Electro-hoist Canrig 27-E (SCR-TD) Deadhorse, under contract 1050E to ExxonMobil for 2015
Emsco Electro-hoist 28-E (SCR) Prudhoe Bay StackedOilwell 2000 33-E Prudhoe Bay Available Academy AC Electric CANRIG 99AC (AC-TD) Deadhorse , under contract to Repsol Repsol for winter explorationOIME 2000 245-E (SCR-ACTD) Oliktok Point ENIAcademy AC electric CANRIG 105AC (AC-TD) Deadhorse, under contract to Repsol Repsol for winter explorationAcademy AC electric Heli-Rig 106-E (AC-TD) Deadhorse, under contract to Great Bear Petroleum Great Bear for winter drilling
Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Well Drill Site W-26 BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site F-28 BPIdeco 900 3 (SCR/TD) Kuparuk Well 3-O-13 ConocoPhillips
Parker Drilling Arctic Operating Inc. NOV ADS-10SD 272 Prudhoe Bay DS 18 BPNOV ADS-10SD 273 Prudhoe Bay DS W-59 BP
North Slope - Offshore
BPTop Drive, supersized Liberty rig Inactive BP
Doyon DrillingSky top Brewster NE-12 15 (SCR/TD) Spy Island S126-NW2 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 AssociatesIDECO H-37 AAO 111 In All American Oilfield’s yard in Kenai, Alaska Available
Aurora Well ServicesFranks 300 Srs. Explorer III AWS 1 Sterling, Stacked out at D&D yard Available
Doyon DrillingTSM 7000 Arctic Fox #1 North Kenai, stacked Nordaq
Nabors Alaska DrillingContinental Emsco E3000 273E Kenai AvailableFranks 26 Kenai StackedIDECO 2100 E 429E (SCR) Kenai Stacked
SaxonTSM-850 147 Ninilchik Unit, Bartolowits pad Hilcorp Alaska drilling Frances #1TSM-850 169 Swanson River Hilcorp Alaska
Cook Inlet Basin – Offshore
XTO EnergyNational 110 C (TD) Idle XTO Spartan Drilling Baker Marine ILC-Skidoff, jack-up Spartan 151 Furie Upper Cook Inlet KLU#1Cook Inlet EnergyNational 1320 35 Osprey Platform RU-1, workover Cook Inlet Energy Hilcorp Alaska LLC (Kuukpik Drilling, management contract) Monopod Platform, Workovers Hilcorp Alaska LLC
Patterson UTI Drilling Co LLC 191 West McArthur River Unit #8 Cook Inlet Energy
Kenai Offshore Ventures LeTourneau Class 116-C, Endeavor Port Graham Buccaneer Energy Ltd. jack-up
Mackenzie Rig Status
Canadian Beaufort Sea
SDC Drilling Inc.SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Available
Central Mackenzie Valley
AkitaTSM-7000 37 Racked in Norman Well, NT Available
Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of December 4, 2014.
Active drilling companies only listed.
TD = rigs equipped with top drive units WO = workover operations CT = coiled tubing operation SCR = electric rig
This rig report was prepared by Marti Reeve
Baker Hughes North America rotary rig counts* Nov. 26 Nov. 21 Year AgoUS 1,917 1, 929 1,763Canada 438 434 385Gulf 52 51 55
Highest/LowestUS/Highest 4530 December 1981US/Lowest 488 April 1999Canada/Highest 558 January 2000Canada/Lowest 29 April 1992 *Issued by Baker Hughes since 1944
The Alaska - Mackenzie Rig Report is sponsored by:
JUDY
PAT
RICK
By GARY PARKFor Petroleum News
Two aboriginal communities in north-western British Columbia are posi-
tioning themselves to take advantage ofany economic benefits from LNG devel-opment in their region.
The Nisga’a Nation, in a rare exampleof Native cooperation on resource proj-ects, has signed a C$6 million pact withthe British Columbia government to allowa pipeline to cross a provincial park thatthe community co-manages with theprovince.
Separately, the Haisla First Nation hasdemonstrated its desire to participate inLNG exports by seeking to acquire up tofive floating LNG terminals at the samesite Enbridge hopes to use for its NorthernGateway crude bitumen terminal.
Nisga’a President Mitchell Stevenstold reporters his community is now seek-ing a partner to build its own LNG facili-ty, having selected four possible locations
within its own lands near Prince Rupert.He said the Nisga’a people are “not
interested in a pipe that comes from thenortheast and brings resources to thecoast. What we are interested in is a pipethat gives us an opportunity to provide foran economic base for our citizens.”
Stevens, while acknowledging there issome resistance within the community toLNG development, said the hereditarychiefs gave their blessing to the proposalat a special session of the community’slegislature.
Almost 60 miles of the 560-milepipeline from the natural gas fields ofnortheastern British Columbia would
cross Nisga’a lands, paralleling an exist-ing highway and transmission line thatwould reduce the level of intrusion.
The Nisga’a had previously signed adeal with TransCanada on the PrinceRupert Gas Transmission line, whichreceived an environmental assessmentcertificate from the British Columbia gov-ernment on Nov. 26 to build a line thatwould deliver gas to the C$11 billion ter-minal planned for the Pacific NorthWestproject, operated by Malaysia’s Petronas.
First benefit-sharing dealThe Nisga’a agreement should be the
first of several benefit-sharing deals withFirst Nations that will include skills train-ing and environmental projects, saidBritish Columbia’s Aboriginal AffairsMinister John Rustad, who hopes that fouraboriginal communities opposed to thePacific NorthWest terminal location willbe persuaded to take a role in the project.
The province has adopted legislationthat allows the Nisga’a to levy and collectproperty taxes from non-Nisga’a residentsand companies and their installationsincluding LNG pipelines that operate ontreaty lands.
Stevens said his people are embracingthe prospect of “becoming an active play-er in the LNG industry (which is the) kindof opportunity for which our elders strug-gled to achieve for over a century. Ourelders have told us now is the time to bebold and move forward.”
Rustad said the Nisga’a agreement is a“significant step for both us and theNisga’a Nation and also for First Nationsacross the north in terms of the LNGopportunity.”
Haisla involved for some yearsThe Haisla have been involved for
some years in laying the groundwork forparticipation in the LNG industry, whichchief councillor Ellis Ross said is a betteroption than allowing the export of heavycrude down the sensitive DouglasChannel from Kitimat.
He said the Haisla have rights and titleattached to the site as well as political andcorporate interests in the land that thecommunity has tried to wrest away fromEnbridge.
“Enbridge doesn’t have tenure on theland,” said Dave LaVallie, manager ofHaisla business opportunities as well aschief executive officer of Haisla-ownedCedar LNG Export Development. “Theydon’t have exclusive rights to use andoccupy that land.”
Enbridge said it has an appropriate“map reserve designation” from theBritish Columbia government to developthe site, but would be open to discussionswith Ellis regarding Haisla-supportedLNG projects, having already agreed to itsland interest from 1,150 acres to 964 acresto create room for LNG operations. l
l N A T U R A L G A S
First Nations eager to take LNG roleBC Nisga’a Nation, Haisla First Nation, want economic benefits; Nisga’a allowing pipeline; Haisla want to acquire floating terminals
4 PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014
Kay Cashman PUBLISHER & EXECUTIVE EDITOR
Mary Mack CEO & GENERAL MANAGER
Kristen Nelson EDITOR-IN-CHIEF
Susan Crane ADVERTISING DIRECTOR
Bonnie Yonker AK / NATL ADVERTISING SPECIALIST
Heather Yates BOOKKEEPER & CIRCULATION MANAGER
Shane Lasley NORTH OF 60 MINING PUBLISHER
Marti Reeve SPECIAL PUBLICATIONS DIRECTOR
Steven Merritt PRODUCTION DIRECTOR
Alan Bailey SENIOR STAFF WRITER
Eric Lidji CONTRIBUTING WRITER
Wesley Loy CONTRIBUTING WRITER
Gary Park CONTRIBUTING WRITER (CANADA)
Rose Ragsdale CONTRIBUTING WRITER
Ray Tyson CONTRIBUTING WRITER
Judy Patrick Photography CONTRACT PHOTOGRAPHER
Mapmakers Alaska CARTOGRAPHY
Forrest Crane CONTRACT PHOTOGRAPHER
Tom Kearney ADVERTISING DESIGN MANAGER
Renee Garbutt CIRCULATION SALES
Ashley Lindly RESEARCH ASSOCIATE
Dee Cashman RESEARCH ASSOCIATE
ADDRESSP.O. Box 231647Anchorage, AK 99523-1647
NEWS [email protected]
CIRCULATION 907.522.9469 [email protected]
ADVERTISING Susan Crane • [email protected]
Bonnie Yonker • [email protected]
FAX FOR ALL DEPARTMENTS907.522.9583
OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 19, No. 49 • Week of December 7, 2014
Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518(Please mail ALL correspondence to:
P.O. Box 231647 Anchorage, AK 99523-1647)Subscription prices in U.S. — $98.00 1 year, $176.00 2 years
Canada — $185.95 1 year, $334.95 2 years Overseas (sent air mail) — $220.00 1 year, $396.00 2 years“Periodicals postage paid at Anchorage, AK 99502-9986.”
POSTMASTER: Send address changes to Petroleum News, P.O. Box 231647 Anchorage, AK 99523-1647.
www.PetroleumNews.com
Petroleum News and its supple-ment, Petroleum Directory, are
owned by Petroleum Newspapersof Alaska LLC. The newspaper ispublished weekly. Several of theindividuals listed above work forindependent companies that con-
tract services to PetroleumNewspapers of Alaska LLC or are
freelance writers.
• Catering and Cleaning Services•Equipment Rental
Kenai, Alaska | (907) [email protected]
www.fivestaroilfieldservices.com
WORK IS BETTER WHEN YOU’RE FED GOOD.
Nisga’a President Mitchell Stevenstold reporters his community is
now seeking a partner to build itsown LNG facility, having selectedfour possible locations within itsown lands near Prince Rupert.
NATURAL GASASAP public scoping report released
The U.S. Army Corps of Engineers and contractor ERM Alaska Inc. havereleased the public scoping report for the state’s proposed Alaska Stand AlonePipeline, ASAP, project.
In a Nov. 25 statement the Alaska Gasline Development Corp. said the reportis a summary of scoping activities for the supplemental environmental impactstatement for the project which occurred between Aug. 1 and Oct. 14.
The report summarizes substantive comments received by the Corps during thepublic scoping period, but does not include responses to the comments. Responseswill be part of the draft supplemental environmental impact statement.
ASAP, the state’s backup plan should the large Alaska LNG project fail toprogress, would deliver utility grade natural gas from the North Slope toFairbanks, Anchorage and other communities. The project includes a gas condi-tioning facility at Prudhoe Bay, a 727-mile 36-inch diameter pipeline and a 29-mile, 12-inch lateral to Fairbanks.
The report is available online at the Corps’ SEIS website www.asapeis.com. —PETROLEUM NEWS
PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014 5
40+YEARS WORKING IN ALASKAWith decades of Alaska-based experience, Fugro delivers comprehensive survey and geotechnical services for every phase of the project lifecycle.
Fugro, Tel: +1 907 561 3478Email: [email protected], www.fugro.com
By STEVE QUINNFor Petroleum News
Sen. Kevin Meyer has held his share of leadershipposts within the Alaska Legislature. On the House
side, he served as House Finance Committee co-chair.On the Senate side he oversaw the Legislative Budget& Audit Committee then returned to share duties onSenate Finance with Sen. Pete Kelly.
But most recently, Meyer’s peers named him Senatepresident, a post he’ll hold for atleast for the next two years.
During his 14 years in theLegislature he’s constantly fendedoff criticism of professional con-flicts for his work withConocoPhillips when bills affect-ing the industry come to his com-mittee or the Senate floor for avote.
The Anchorage Republicansays he’s accustomed to the push-back he and other colleagues have received.
As the new Legislature takes shape with its assign-ments and as the state welcomes a new administration,Meyer’s majority caucus has already said resourcedevelopment, especially the advancement of a naturalgas export line, is a priority.
Meyer spoke to Petroleum News about what liesahead in coming sessions and special sessions.
Petroleum News: One of the state priorities the newcaucus announced was resource development, or oiland gas. Talk about that a little, please.
Meyer: Those are preliminary priorities of ours. Wewill finalize those out at a retreat coming up in the mid-dle of December. The governor will have to release hisbudget by then. Obviously the budget is a big issue forus this year. As you know we budgeted at about $105this year and we are about $80. When I was the co-chair of Finance — and I guess technically I still am —we had a plan for declining revenues. Of course key tothat was the passage of SB 21 so we could get moreproduction.
We don’t hear much about it today, but thank good-ness we have SB 21 at these low oil prices. Our planwas to winnow back on the state’s spending. At thesame time the private sector would pick up spending,so you wouldn’t see much of an impact, if any to youreconomy.
Then we would keep using our reserves to keepbasic government services like education and healthand social services. We felt like we had enough savingsor reserves that, along with reducing the budget, wecould last 10 years until we saw first revenue from gasand the gas pipeline. That was our plan, but with oilnow at $75 and not $105, we will have to expedite thereduction process.
Petroleum News: Still on the topic of oil taxes, thisdebate lasted nearly eight years when you folks begandebating a change under the Murkowski administra-tion. The voters seemed to have the final say whether touphold SB 21 or reject. With the decision made, canthat help the Legislature move forward without havingit hanging over their heads?
Meyer: Yeah, I think so — definitely. As far as theLegislature is concerned, we are done with it. The pub-lic verified that with the vote no on 1 campaign. Thereare going to be people out there saying they like ACESbetter or they like something else better. There will berumblings and discussions about it, but like I said, SB21 works so much better under low oil prices. I justdon’t anticipate hearing much about it. Even GovernorWalker said he’s done with it. I hope it’s a dead issueand that we can focus on gas right now.
Petroleum News: Are there any particular develop-ments on the oil front that have pleased you and sup-ported your position?
Meyer: I think the private sector has done what theysaid they would do. They said the passageof SB 21, which basically allows them tohave more predictability in what the tax isgoing to be at whatever price, wouldchange things. As you know the problemwith ACES, at high prices it took a dispro-portionate amount of money in taxes, andat low prices it took less. Right now the oil companieswould be much better off at ACES, but what they want-ed and what SB 21 did was give them was predictabili-ty and stability so they could do some long-range plan-ning. We are seeing projects come on line at Kuparukand West Sak, especially ConocoPhillips comingthrough with brining up new drill rigs. You don’t bringup new rigs unless you are committed to doing morework.
We heard from Great Bear who was pretty quiet dur-ing the oil tax debate, saying they are going forwardwith their work, more non-traditional type drilling.Then you’ve got Brooks Range moving forward withthe Mustang project. Now we are hearing how Caelusis being much more aggressive with their work. Ihaven’t heard much from BP, but I know they are mov-ing forward within the Prudhoe Bay reservoir andExxon is still going forward with Point Thomson. Ithink the oil industry is doing exactly what they saidthey were going to do. That gives us the Legislaturemore credibility in what we did. We are counting onthat to help us offset the reductions we are going tohave to make in state spending, and federal spending,which we don’t have much control over that.
Petroleum News: There is obviously a new adminis-tration coming. Do you expect anything to change fromthe work you’ve started?
Meyer: I think the wild card there is going to be gas
and the gas pipeline. I’m not sure we know which wayhe wants to go with the pipeline. I’ve heard differentstories. I know when we were taking action on the cur-rent project, the large one, anyway, he actually testifiedagainst it.
He’s also learned more about the merits of what wedid. Hopefully he’s not going to abandon that idea. Weare so much further along on a gas pipeline than we’veever been. Certainly, this plan works with the industryrather than against the industry. In my 35 years inAlaska, I’ve never seen anything good come out of try-ing to force the private sector to do something that mayor may not be economical for them to do it.
They are just not going to do it. It will just lead tomore lawsuits and delays. I really like the current plan.It’s got us further along than we’ve ever been. It takes alot of risk away from the state. We are not having tofront the entire $65 billion and we couldn’t afford toeven if we wanted to.
It does allow us to be partners and be at the tablewith the industry. We know what they are thinking; weknow what they are doing. We know what their eco-
nomics are. We may need to make someminor tweaks here and there, but hope-fully we don’t abandon the current plan.
You know (pending four-term HouseSpeaker Mike) Chenault been pushingthat in-state line. That is our backup planin case the economics didn’t work with
the big line or the market crashes. We still wanted tohave a bullet line to take care of in-state needs. I hopethat advances as well because even if we don’t get thebig line and the revenue from the export, at least wewill have affordable gas for our own people, Alaskans.
Petroleum News: Let’s go back to your newlyappointed post. You seen bills from the post of co-chairin Finance — both House and Senate — as LB&Achair, how do you think your view of any resource leg-islation will differ?
Meyer: I think it’s too early to say. We’ve seen dif-ferent perspectives, approaches and bills dating back toGov. Murkowski, who was pretty serious about gettinga gas pipeline. We had special sessions that lasted sev-eral weeks in Juneau. He proposed to keep the tax rateon gas over 20 to 30 years. That got people upset. He’sthe one who brought up the oil taxes and that got thediscussion started.
Then Gov. Palin came in. She had her ideas and awhole different approach with AGIA. She actuallyintroduced ACES. Her initial idea of ACES wasn’t toobad. I blame the Legislature for letting that one get outof control, especially the progressivity part.
Then we tried HB 110, which was a pretty goodapproach as well, but it wasn’t going to pass a bi-parti-san Senate. Finally, SB 21 we were able to get itpassed. We’ve seen a lot of different bills, a lot of dif-
l G O V E R N M E N T
New Senate president: Budget big issueMeyer says budgeting done on $105 oil, cuts will need to come faster; LNG plan puts state further along, allows it to partner
SEN. KEVIN MEYER
see MEYER Q&A page 17
By ALAN BAILEYPetroleum News
In the global debate over the value ofArctic economic development and the
need to protect the region’s spectacularenvironment is Alaska missing out in deci-sions that could have far-reaching conse-quences for the state’s future? And are thetradeoffs involved in that debate movingtoo far in the direction of environmentalconservation?
In a speech on Nov. 19 at the ResourceDevelopment Council’s annual conference,Drue Pearce, senior policy advisor forCrowell and Moring LLP, warned thatAlaskans might want to be aware of somedynamics in the international Arctic agendathat could have far-reaching consequencesin Alaska both for business and for thestate’s residents.
The Arctic CouncilPearce’s speech particularly focused on
the organization and activities of the ArcticCouncil, the intergovernmental forum thatperforms an important role as a venue forthe eight Arctic nations to discuss and pur-sue issues of mutual interest. In 2015 theUnited States takes over the chairmanship
of the council from Canada, the currentchair. That change of chair gives the UnitedStates an opportunity to set the agenda forArctic Council actions.
But there seems to have been a drift inthe focus of government policy, away fromArctic economic development and towardsenvironmental conservation, Pearcewarned. By way of illustration, Pearcecommented that, while President Bush’sU.S. Arctic policy, published in 2009, hadsupported both environmental protectionand the promotion of economic and energyissues, President Obama’s strategy for theArctic, released in 2013, said nothing abouteconomic development.
“That’s the sea change that we’re deal-ing with,” Pearce said. “We now protectand conserve. We don’t develop.”
And commending the efforts of theAlaska Arctic Policy Commission and theAlaska Federation of Natives in promotingAlaska’s interests, Pearce emphasized theimportance of having Alaskans involved indecision making over Arctic policies.
“It takes all of us working together tomake sure that the people of Alaska, thepeople who live and work in the UnitedStates Arctic, actually have a place, andhave an opportunity to explain to the folks
inside the beltway what needs to happenand why we need to be there as decisionsare taken,” Pearce said.
Canadian agendaThe recent agenda for the Arctic
Council, agreed at national governmentministerial level and set during the currentCanadian chairmanship, has revolvedaround development for the people of thenorth, with a focus on responsible Arcticresource development, safe Arctic shippingand sustainable circumpolar communities,Pearce said. The council has formed theArctic Economic Council, a forum forArctic business development, and hasestablished guidelines for sustainabletourism and cruise ship operations. Thecouncil has also promoted the developmentof the polar code, a set of standards for ves-sels plying Arctic waters.
The Arctic Economic Council hasalready identified some initial projectsaddressing questions such as stewardshipof the Arctic and responsible resourcedevelopment, Pearce said.
And, while ministers and senior Arcticofficials from the Arctic nations govern thecouncil, the indigenous people of the Arctichave a say in council policies through thepermanent participation of six groups rep-resenting indigenous communities aroundthe region.
Environmentalist involvementBut Pearce expressed concern about
what appears to the over-weighted influ-ence of environmental organizations indecision-making at the working-grouplevel within the Arctic Council as a whole.Currently there are 11 nongovernmental
organizations but no business organizationswith Arctic Council observer status, shesaid. And, with funding being an issue forthe council’s work, environmental organi-zations are happy to underwrite projectswith environmental perspectives, she said.
Pearce described one project that anArctic Council working group is conduct-ing to identify areas of the Arctic offshoreand coastline that may require environmen-tal protection. That group has produced adraft map of proposed protected areas,including the entire Bering Strait, much ofthe Aleutian Islands, and much of theChukchi and Beaufort seas, Pearce said.But, apart from a representative from theInuit Circumpolar Council-Alaska, thereare no Alaskans involved in this workinggroup. The working group includes peoplefrom U.S. federal agencies, but has no rep-resentation from Alaska local government;from state or provincial governments; fromthe people who manage coastal infrastruc-ture development; from people who man-age local permitting; or from people whomanage opportunities for subsistence hunt-ing and fishing, Pearce said.
“The people who work on these mapsare the people who covet the Arctic andthey don’t covet it for the reasons we do,”Pearce said. “They’d like the whole Arcticoff limits. And, if that doesn’t work, they’lldraw maps like this, which we will see inlitigation.”
U.S. chairmanshipWhen the United States becomes chair
of the Arctic Council in April, the U.S.plans extensive public outreach, raising thelevel of Arctic and climate change aware-ness, and addressing themes such theimpacts of climate change in the Arctic;stewardship of the Arctic Ocean; andimproving Arctic economic and living con-ditions, Pearce said.
But none of the projects proposed thusfar under the U.S. chairmanship will helpbuild sustainable Arctic economies, shesaid. And some will actually undermine theregion’s economic health, she suggested,citing one study calling for the eliminationof emissions in the Arctic, including a banon all gas flaring.
“The state would be devastated by adecision like that,” she said. l
l G O V E R N M E N T
Alaska and the global Arctic agendaDrue Pearce questions whether Alaskans have enough influence in major international decisions impacting the state’s future
6 PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014
Proudly Serving Alaska’s Oil & Gas Industry For Over 40 Years
PRUDHOE BAY — COOK INLET• CASING SERVICES
• WELDING AND FABRICATION• DAVIS-LYNCH FLOAT EQUIPMENT SALES
• RIG MAT RENTALS
Tel: 907-563-3550Fax: 907-562-6468www.gbroilfield.com
6300 Petersburg St., Anchorage, AK
PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014 7
Anchorage Honolulu Los Angeles
• Commercial Diving• Marine Construction Services• Platform Installation, Maintenance and Repair• Pipeline Installation, Maintenance and Repair• Underwater Certified Welding• NDT Services• Salvage Operations• Vessel Support and Operations
• Environmental Services• Oil-Spill Response, Containment and Clean-Up• Hazardous Wastes and Contaminated Site Clean-
Up and Remediation• Petroleum Vessel Services, e.g. Fuel Transfer• Bulk Fuel Oil Facility and Storage Tank
Maintenance, Management, and Operations
American MarineServices Group
6000 A Street, Anchorage, AK 99518
907-562-5420Deadhorse, AK
907-659-9010www.amarinecorp.com • www.penco.org
By WESLEY LOYFor Petroleum News
Miller Energy Resources Inc. is reporting somewhatdisappointing results from a new well drilled off its
Osprey platform in Alaska’s Cook Inlet.On another front, the company recently wrapped up the
sale of its legacy oil and gas assets in Tennessee. Thatmakes Alaska nearly the sole concern for Miller.
“Tennessee is where our company got its start, and wethink our buyer will have great success there,” Carl Giesler,Miller’s chief executive, said in a Nov. 21 press release. “Atthe same time, this sale was the right strategic move for us.It allows us to focus our efforts as well as the market’s atten-tion on our substantial Alaskan oil and gas resources andrelated infrastructure.”
$3.3 million saleMiller didn’t name the buyer of its Tennessee assets. The
deal closed on Nov. 20.The sale price was about $3.3 million in cash, the com-
pany said.“Miller expects the sale of its Tennessee operations will
reduce costs and increase the company’s cash flow byapproximately $800,000 per year,” Miller said.
Miller is based in Knoxville, Tennessee, and trades onthe New York Stock Exchange.
It operates in Alaska via its Anchorage-based subsidiary,Cook Inlet Energy LLC. The company’s producing proper-ties in Alaska include the Osprey platform in the offshoreRedoubt unit, the West McArthur River oil field and theNorth Fork natural gas field. The company also is in theprocess of acquiring Savant Alaska LLC, which will giveMiller control of the small Badami oil field on Alaska’sNorth Slope.
Miller said its overall production is currently about4,200 barrels of oil equivalent per day net.
The company is awaiting final regulatory approval forthe Savant acquisition, which is expected to boost Miller’snet production by about 600 barrels of oil per day.
RU-9 well disappointsIn the Nov. 21 press release, Miller announced its new
Osprey platform well, known as RU-9, had entered produc-tion.
Output from the well reached about 100 barrels of oil perday prior to an electrical failure, Miller said.
Production to date from RU-9 “has not met our expecta-tions given earlier tests,” Giesler said. “Going forward, wewill refocus our drilling program on lower-risk develop-ment opportunities at our North Fork, Redoubt and, afterthe closing of our Savant acquisition, Badami fields in orderto grow steadily our production and cash flow.”
Miller had high hopes for RU-9. In February, prior todrilling, the company said the well was “intended to capture
oil reserves from a large four-way structure located approx-imately 2.5 miles southwest of the Osprey platform.”
Impact of oil price declineWith lower oil prices, Miller’s stock has tumbled. The
shares closed Dec. 2 at $1.62, down 50 percent from theNov. 24 close of $3.24 and 75 percent off the July 3 closeof $6.40.
The company on Dec. 1 issued a press release remindinginvestors that Miller has hedged more than 90 percent of itscurrent oil production.
“Miller has approximately 390 MBbls hedged at $98.71for the remainder of fiscal 2015, approximately 788 MBblsat $95.36 for fiscal 2016 and approximately 233 MBbls at$93.97 from May 2016 through December 2016,” the pressrelease said. “The company also notes that it sells themajority of its gas under long-term contracts priced atapproximately $7 per Mcf.”
Miller has scheduled a Dec. 10 conference call to discussquarterly financial results and plans for a “lower-risk, moregas-focused” drilling program.
“Based on its oil hedge profile, long-term gas contractsand lower-risk, more gas-focused drilling plan, the compa-ny believes it has sufficient liquidity if oil prices remain atcurrent levels for the foreseeable future,” Miller said. l
l F I N A N C E & E C O N O M Y
Miller’s new well falls short of hopesRU-9 drilled from Osprey platform in Alaska’s Cook Inlet; company reports closing sale of legacy assets in home state of Tennessee
By KRISTEN NELSONPetroleum News
The Walker-Mallott administration took office Dec. 1,with Gov. Bill Walker declaring that Alaska doesn’t
have a resource problem, it has a distribution problem, andpledging to work to get North Slope natural gas to Alaskansand to global markets.
Commissioner appointments of particular significanceto the oil and gas industry include Mark Myers at theDepartment of Natural Resources and Randall Hoffbeck atRevenue — announced in November and previouslyreported in Petroleum News — and the recent announce-ment of Craig Richards as attorney general and MartyRutherford as deputy DNR commissioner.
Myers, formerly director of the Division of Oil and Gas,served as national director of the U.S. Geological Surveyfrom 2006-09, from 2009-10 was the state’s first natural gasinducement act coordinator and for the past four years hasbeen vice chancellor of research at the University of AlaskaFairbanks.
Hoffbeck has 30 years of tax administration experience,
including petroleum property assessor for the state 2001-06.Recently he served as the North Slope Borough’s chieffinancial officer from 2006-11 and as chief of staff to MayorCharlotte Brower in 2012.
Richards has been Walker’s law partner. A lifelongAlaskan, he holds a juris doctorate from Washington andLee University, an MBA from Duke University and afinance degree from the University of Virginia. The gover-nor’s office said Richards’ law practice centered on areascritical to the state, including natural gas project develop-ment, finance, taxation and oil and gas leasing.
“I have worked alongside Craig Richards for more thana decade. I trust his judgment and admire his ability toquickly and thoroughly analyze complex legal issues. Hewill be a strong addition to my administration,” Walkersaid.
Rutherford has 19 years of state government experience,including as DNR deputy commissioner in the Palin admin-istration, and most recently has been special projects man-ager for Linc Energy. Rutherford is acting commissioneruntil Myers wraps up work at UAF.
Walker said “Marty is a natural fit for this position. I
know and trust Marty. She will hit the ground running anddo an outstanding job,” he said.
Pawlowski headed to DCOne note of interest from the outgoing Parnell adminis-
tration is that Mike Pawlowski, most recently deputy com-missioner of Revenue, is making the move to Washington,D.C.
Sen. Lisa Murkowski, R-Alaska, said Dec. 3 thatPawlowski will join the Republican staff of the SenateEnergy and Natural Resources Committee. Pawlowski is agraduate of Alaska Pacific University.
“Mike has extensive expertise on our state’s oil and gasissues,” Murkowski said. “I can think of no one better thana lifelong Alaskan with considerable policy experience toadd to our team as we make the case for greater access toour federal lands and waters.”
House congrats, issuesThe House majority and its Democratic caucus both
l G O V E R N M E N T
Walker, Mallott inaugurated in JuneauGovernor names Rutherford deputy DNR commissioner; Murkowski adds Pawlowski to staff for Energy and Natural Resources
see NEW ADMINISTRATION page 17
By GEORGE JAHN Associated Press
Reflecting its lessening oil clout, OPECdecided Nov. 27 to keep its output tar-
get on hold and sit out falling crude pricesthat will likely spiral even lower as a result.
Oil prices fell sharply on the news. Eventhough the decision was largely expected,it showed the once-powerful cartel is losingthe power to push up markets to its ownadvantage.
OPEC has traditionally relied on outputcuts to regulate supply and prices. But itappeared to realize Nov. 27 that with cheapcrude in oversupply, a reduction wouldonly cut into OPEC’s share of the marketwithout a lasting boost in prices and withothers outside the cartel making up the dif-ference.
Instead, the move to maintain a produc-tion target of 30 million barrels a day
appeared to reflect acceptance of the Saudiview within OPEC that short-term pain hadto be accepted for later gain.
The Saudis and their Gulf allies hope toput economic pressure on rival producersin the U.S., which need higher prices tobreak even. In the long term, that couldhelp reaffirm OPEC’s dominance of the oilmarket.
It would also be good news for con-sumers and oil-importing nations.
The global price plunged $5 to a four-year low of $72.76 a barrel. As recently asJune it was around $115.
Oil ministers had come to the Nov. 27meeting facing two unpalatable choices:Cut their production from 30 million bar-rels a day in an effort to boost prices andsee OPEC’s market share fall, or do noth-ing in hopes of riding out the crisis.
Paring output may not have been veryeffective because supply from non-OPECcountries, like the U.S., remains high. Also,
discipline within the 12-member organiza-tion is lax and overproduction by somemembers would have cut into the effective-ness of any production cut.
In any case, OPEC could have notafforded to scale back production by morethan 1 million barrels a day — too little tomake a sizable dent in supply.
OPEC Secretary General Abdullah Al-Badry suggested all members were onboard with the decision to stick to the pres-ent output level, telling reporters “the min-isters are happy.”
“I see no nagging from consumers, nonagging from producers,” he told reporters.
In fact, the decision once againappeared to reflect Saudi Arabia’s cloutover less powerful OPEC rivals.
By opposing an output cut, SaudiArabia appears to be hoping to drive pricesbelow the level at which shale oil produc-tion is economical. Experts say shale oilproduction turns too costly at the $60 a bar-
rel level. “When it comes to the raw decision-
making, that is left to the unofficial leader,Saudi Arabia,” said Alfa Energy chairmanJohn Hall.
Accounting for about a third of OPECoutput, the Saudis can weather lower pricesbecause their coffers are well-padded andits production costs are relatively low.
But poorer OPEC members likeVenezuela and Nigeria need levels close to$100 or above to fund national budgets.Saudi rival Iran is suffering, too, with theprice drop adding to huge revenue lossesdue to sanctions on its crude sales imposedover its nuclear program.
If sanctions were to be lifted as part of anuclear agreement next year, Iran stillwould need prices close to $140 a barrel tofinance the government budget. Crudeexport revenues finance more than 50 per-cent of the government’s outlays.
In the case of Venezuela, theInternational Monetary Fund says it needsto sell oil at around $120 a barrel to avoidthe threat of national bankruptcy. Bank ofAmerica estimates that for every dollar thatoil prices drop, the state loses $770 millionin net revenue over a year. That puts rev-enue $12 billion a year below peak levelseven if current prices don’t fall further.
Nigeria also needs a stronger market toflourish. Analysts say the government hasorganized its 2015 budget around an oilprice of $78 a barrel based on production of2.4 million barrels a day — but the countryis pumping only about 2 million barrels aday.
Angola, Ecuador and other OPECmembers with limited production may alsosuffer — but not so Saudi Arabia’s wealthyallies Qatar, the United Arab Emirates andKuwait.
Iranian oil minister Bijan NamdarZangeneh said the “OPEC decision wasnot entirely what we wanted,” and analystssuggested that others share that view.
“I think you’re going to see additionaltension between the OPEC ranks,” saidJamie Webster, senior director of crude oilmarkets at IHS consultants. l
—Margaret Childs contributed to thisreport.
l F I N A N C E & E C O N O M Y
OPEC keeps output on hold despite pricesSaudis hope to put economic pressure on rival producers in US; poorer members have to meet budgetary needs, can’t cut production
8 PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014
Safer. Smarter.
Our CDR2-AC rig reflects the latest innovations in Arctic drilling to provide our customers with incident free performance and operational and technical excellence.
CDR2-AC is the first Arctic rig designed and built by Nabors specifically for Coil Tubing Drilling operations. The rig was built to optimize CTD managed pressure drilling to provide precise control
of wellbore pressures for improved safety, decreased costs, and increased wellbore lengths.
Combining safety and environmental excellence with greater efficiency means CDR2-AC can deliver the high value results customers have come to expect from Alaska’s premier drilling contractor.
Learn more about Nabors’ new drilling technologies at Nabors.com.
nabors.com
Better.
PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014 9
Instant communication when you need it most.Introducing AT&T Enhanced Push-to-Talk.
We understand how your business works. That’s why we engineered a new push-to-talk service that works better for you.
AT&T Enhanced Push-to-Talk delivers more of everything you need—instant communication, up to 1,000 contacts and fl exible network technology. Plus, it’s available on a broad array of devices and platforms.
Visit your local AT&T store to get your business started today.To learn more, call 1-800-792-9281 or go to att.com/enhancedPTT4
You push-to-talk. We pushed it further.
Information on Enhanced Push-to-Talk, including terms and conditions, can be found online at www.att.com/enhancedptt4. © 2014 AT&T Intellectual Property. All rights reserved. AT&T, the AT&T logo and all other AT&T marks contained herein are trademarks of AT&T Intellectual Property and/or AT&T affiliated companies.
We have alarge polarbear blockingthe entrance.
Roger that.Call us whenall is clear.
10 PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014
WITH FLYAWAY REWARDS POINTS
EARN 10 POINTS
EVERY 200 POINTS
Some restrictions apply. See website for details. Points not awarded on FlyAway Rewards tickets. Some services are provided by other airlines in the Ravn family.
FAI
l P I P E L I N E S & D O W N S T R E A M
Kinder Morgan red facedCompany loses legal fight, retreats early from exploration of alternateroute for Trans Mountain expansion; GPS coordinates wrong
By GARY PARKFor Petroleum News
L osing a legal fight can be costly,annoying and even embarrassing for
a corporation.Getting ridiculed in the process, with
no place to hide, is not an experience thatKinder Morgan will soon forget.
The giant energy firm went throughthat humiliation at the end of Novemberin British Columbia Supreme Court, leav-ing it with no option but to retreat earlyfrom its attempt to explore an alternativeroute for expansion of its Trans Mountaincrude oil pipeline system in MetroVancouver.
It has now halted drilling to test theviability of tunneling through BurnabyMountain and pulled all of its equipmentand crews out of the area after facing ananti-pipeline protest that garnered inter-national attention because of the focus onplans to increase shipments of crude bitu-men to 890,000 barrels per day from thecurrent 300,000 bpd to refineries andtanker terminals in British Columbia andWashington state for export to Asia-Pacific markets.
A spokeswoman for Kinder Morgansaid the crews finished drilling down toabout 500 feet and issued a preliminaryfinding that the area appears stableenough for a pipeline.
She said the indications are that thepipeline extension could be built with atunnel or directional drilling.
The samples collected will provide thenecessary information for Kinder Morganto submit as part of its application toCanada’s National Energy Board to pro-ceed with the $5.4 billion project.
A Supreme Court judge refused toextend a court injunction against protest-ers for another 12 days to Dec. 12, forc-ing Kinder Morgan to pack up beforecompleting its work.
Contempt charges dismissedBut, more humbling still was the
judge’s decision to dismiss all civil con-tempt charges against more than 100 pro-
testers because of GPS errors by KinderMorgan in specifying the exact locationof its requested “no-go” zone.
The company conceded that it provid-ed incorrect GPS coordinates when it ini-tially requested a court injunction, withsome of the data so inaccurate that theactual work site was completely outsidethe area covered by the injunction.
Because of the GPS errors, KinderMorgan applied — at the judge’s invita-tion — to drop the civil contempt pro-ceedings.
In a possible face-saving move,Kinder Morgan — in response to a sug-gestion by Burnaby Mayor DerekCorrigan, one of the most outspokenpipeline opponents — said it has not ruledout paying the costs of policing by theRoyal Canadian Mounted Police.
However, a company spokeswomantold the Globe and Mail that an officialrequest has yet to be made. “If (Corrigan)sends us a bill, we’ll assess it then,” shesaid.
The RCMP estimated that scores ofofficers were involved in round-the-clockduty at a cost of about C$100 an hour.
The spokeswoman said the companyexpects further activism as work proceedson the project — one of the few timesCorrigan agrees with Kinder Morgan,having alerted protesters to prepare foron-going battles as part of the wideningcampaign across Canada to block workon fossil-fuel pipelines, especially thosesourced by crude bitumen from theAlberta oil sands. l
The company conceded that itprovided incorrect GPS
coordinates when it initiallyrequested a court injunction, with
some of the data so inaccuratethat the actual work site wascompletely outside the areacovered by the injunction.
GOVERNMENTChanges to GHG reporting for industry
The EPA, or Environmental Protection Agency, is proposing to add some newrequirements for the oil and gas industry to the agency’s regulations for green-house gas reporting in the United States. The agency wants to include within thereporting program some new rules that would require the reporting of emissionsfrom gas gathering and boosting facilities; from well completions and workoversinvolving hydraulic fracturing; and from the pressure blowdowns of natural gastransmission pipelines. The agency also proposes mandating the reporting of wellidentification information.
The greenhouse gas reporting program was mandated by Congress in 2008 andfirst implemented in 2009, requiring reporting by facilities that emit more than theequivalent of 25,000 metric tons of carbon dioxide per year. Certain systems oper-ated by the oil and gas industry were included in the program in 2010, but EPAnow wants more systems included. The proposed additions to the regulationswould primarily target the emission of methane, a particularly potent greenhousegas.
The overall objective of the program is to gain insights into the sources ofgreenhouse gases, as a guide to future emissions reductions and programs, EPAhas said. The proposed revisions to the program reflect rapid changes in the petro-leum industry since 2010 and address current gaps in the data coverage, theagency says. In some cases, the proposed new regulations would aggregate emis-sions for a facility with individually small emitters that would previously havefallen below the size limit for mandatory reporting.
EPA is also seeking innovative new ways, such as remote sensing, for identi-fying and calculating greenhouse gas emissions, the agency says.
The agency says that, following a public comment period and subsequentchanges to the proposed rules, it anticipates publishing a final version of the reg-ulation amendments by the end of 2015, so that the changes will go into effect onJan. 1, 2016.
—ALAN BAILEY
PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014 11
Find out more about Foss in the Arctic at www.foss.com.
For nearly a century Foss has successfully navigated Alaska’s most extreme environments.
for qualified candidates to fill Doyon Anvil, LLC is looking
eamJoin Our TTe
for qualified candidates to fill Doyon Anvil, LLC is looking
eam
A, Biour Bellingham, WWAAnchorage, AK office and in
e have openings in our W
.oject ManagementPrementocurPr, Disciplines
Engineering and Design open positions in all for qualified candidates to fill
A, Billings, Anchorage, AK office and in
e have openings in our
, and ementEngineering and Design
[email protected] to Submit your r
.doyonanvil.com.us, visit wwwmation about e inforFor mor
d, CA offices., and ConcorMTT,
.doyonanvil.com.mation about
d, CA offices.
l N A T U R A L G A S
Legislators get Parnell admin LNG updateBy KRISTEN NELSON
Petroleum News
Alaska legislators got an update on theAlaska LNG project from outgoing
Parnell administration officials Nov. 28.While most of the Joint Legislative Budgetand Audit Committee hearing was in exec-utive session, overheads provided for thepublic portion of the hearing provided anoverview of where the project is and whatstate officials expect to happen next.
On the issue of holding most of the hear-ing in executive session, Sen. AnnaFairclough, R-Eagle River, LB&A chair,said in a statement issued after the hearingthat when the Legislature passed SenateBill 138, legislators anticipated “that theLegislature would need to be briefed onsensitive information to protect Alaska’s
interest in the LNG project on behalf of thepeople of our state.”
“It is critical that this information remainconfidential so we, as the State participantin the project, aren’t tipping our hand to theproducers and other partners on our strategyand therefore undermine the State’s inter-est.”
She said it is also the job of the“Legislature to be informed and understandwhy certain decisions and commitmentshave been made, understand the work thathas been done to date for the future devel-opment of the LNG project, as well as pro-vide input on the process and decision mak-ing.”
To participate in the executive sessionlegislators and staff were required to signconfidentiality agreements.
Rep. Mike Hawker, R-Anchorage,LB&A vice chair, said that in passing SB138 the Legislature “mandated confidentiallegislative briefings on the AKLNG project.It is right and appropriate that we receive astatus briefing in accordance with the ruleswe established as part of the transition ofadministrations.”
In the public briefing, by outgoing
Natural Resources Commissioner JoeBalash and outgoing RevenueCommissioner Angela Rodell, the commis-sioners said the state believes the pre-FEED, preliminary front end engineeringand design, phase, requires “term sheets forkey project terms” by the second quarter of2015, with a royalty in kind decision inApril, final fiscal agreement and potentiallyother key agreements by August, a specialsession of the Legislature in the fall of 2015and final enabling agreement to move intoFEED in the first quarter of 2016.
The public release of agreements wouldoccur in August 2015, followed by the spe-cial session in October and a FEED deci-sion in the first quarter of 2016. l
JOE BALASH ANGELA RODELL
l A L T E R N A T I V E E N E R G Y
Canada turning greenSurvey shows renewable energy employs more than oil sands, but GHG emissions still rising; think tank calls for government support
By GARY PARKFor Petroleum News
Canada’s renewable energy sector employs more peo-ple than the oil sands, with C$25 billion invested in
green energy projects over the last five years, peaking atC$6.5 billion in 2013.
The investment spurt has moved Canada to seventhplace among the Group of 20 industrialized nations from12th spot a year ago.
On the downside, greenhouse gas emissions are on therise according to Environment Canada, meaning the coun-try is not even close to meeting its 2020 international tar-get for curbing emissions under the 2009 CopenhagenAccord — and that ensures that Canada will again have todeal with global finger-pointing as it enters two weeks ofmeetings in Lima, Peru, on the United Nations frameworkconvention on climate change.
But there was still much to inspire hope for CleanEnergy Canada, which released these results Dec. 2 in itsfirst annual survey of Canada’s clean energy performance.
The independent think tank said that “while pipelinesgrab more headlines, clean energy is grabbing growth,”crediting policy leadership in the British Columbia,Ontario and Quebec governments with helping to drive
renewable energy investment and a 37 percent increase infull-time employment since 2009 to 23,700, outnumber-ing the 22,340 direct employees in the oil sands.
Big business“Clean energy has moved from being a small niche or
boutique industry to a really big business in Canada,” saidMerran Smith, director of the think tank.
She said investment in the sector over the past fiveyears is about the same as agriculture, fishing and forestrycombined and the industry will “continue to show hugegrowth potential.”
But Smith said Canadian government backing is cru-cial for clean energy in the same way that federal moneyhas helped every major industrial sector — from the oilsands to the aerospace industry — get off the ground.
The study showed that leading fossil fuel players,notably the highly criticized pipeline companies Enbridge
and TransCanada, are among the top five producers ofrenewable energy.
Of the combined 4,090 megawatts of power generatedby those companies n 2013, TransAlta accounted for1,510 MW, Enbridge 890 MW and TransCanada 650 MW.
On the flip side, Alberta — which relies on fossil fuelsfor 85 percent of its generated power — need to get intothe renewable energy game, Smith said.
But she did concede there is a glimmer of hope, withAlberta Finance Minister Robin Campbell declaring thather province has to “get off the oil train.”
China leader in bothGlobally, the study said China is now the world leader
as a carbon polluter and clean energy producer, with theUnited States second in both categories.
But Clean Energy Canada said U.S. clean energy com-panies are hungrily eying investment beyond their domes-tic borders, with the U.S. International TradeAdministration flagging Canada as the top market forrenewable energy and energy efficiency exports in keep-ing with President Barack Osama’s goal of doublingthose exports in the 2010-2015 period. l
“Clean energy has moved from being a smallniche or boutique industry to a really bigbusiness in Canada.” —Merran Smith,
director, Clean Energy Canada
By ERIC LIDJIFor Petroleum News
With the Walker administration facinga decision to maintain, revise or
reject a Parnell administration recommen-dation to offer royalty relief for the Nunadevelopment, it is be helpful to consider thenearly 20-year history of the royalty reliefprogram in Alaska.
Since 1996, the Alaska Department ofNatural Resources has only received sevenrequests for royalty reduction. Prior the cur-rent case, the state had only approved two.
On Dec. 2, the state Legislative Budgetand Audit Committee reviewed a state planto reduce the royalty rates on five leases atthe proposed satellite of the Oooguruk unit.
If operator Caelus Natural ResourcesAlaska LLC sanctions the project by the endof the year and meets spending and devel-opment targets through early 2017, theAlaska Department of Natural Resourceswould lower its royalty rate to 5 percent onthe leases.
The existing royalty rates on those fivesleases are either 12.5 percent or 16.667 per-cent.
The reduced royalty would remain ineffect until Caelus earns $1.25 billion in rev-enue.
Relief requested for 11 leasesIn its application, Caelus requested roy-
alty relief on 11 leases associated with thedevelopment. The company said the devel-
opment would be uneconomic withoutrelief.
The bulk of the application — the sectionlaying out the case for reduction — is pro-prietary. However, the state claimed to haverun independent models before making itsrecommendation. The state will rule afterthe comment period ends on Dec. 12.
In documents shown at the hearing, stateand company officials claimed that theNuna development is “high risk, highreward.” The accumulation is thought tocontain 1 billion barrels of oil in place, butthe reservoir has low porosity, low perme-ability, high oil viscosity and high initialwater cut. Those conditions will requirelarge hydraulic fracturing operations on pro-ducers (which is common) and injectors(which is not).
Privately held independentAdditionally, Caelus is a small privately
held independent without the financial mus-cle to fund projects internally or the finan-cial options available to a publically tradedcompany.
That said, earlier this year Caelusannounced a partnership with the invest-ment firm Apollo Global Management. Thedeal gave Caelus access to nearly $1 billionin capital.
The state stands to lose some $44 millionin revenue by approving the reduction andstands to gain between $1 billion and $1.75billion in revenue should to project moveforward, according to Department of
Natural Resources estimates offered at thehearing.
The deal also requires Caelus to give thestate a public account of its developmentwork — including costs, facilities designand forecasts — after two years of produc-tion. The state believes that information willbe useful to future operators on the NorthSlope.
Even so, Rep. Les Gara, D-Anchorage, ischallenging the recommendation.
Because the “gross value reduction” pro-vision of the More Alaska Production Act,also known as Senate Bill 21, “already pro-duces a negative or near zero production taxworth for post-2003 fields like Nuna,” Garawrote in a public letter to Parnell adminis-tration officials several days before the hear-ing, “reducing the separate ‘royalty’Alaskans receive from this field by over 50percent might leave Alaskans with very lit-tle worth for our oil, and that may not be jus-tified under a fair review of the facts.”
Two reduced, two sanctionedOf the six previous requests for royalty
relief received since 1996, the AlaskaDepartment of Natural Resources hasapproved two: for the Oooguruk unit in2005 and for the Nikaitchuq unit in 2008.Those two fields have a lot in common.They are the two newest producing fields onthe North Slope, and they are the first NorthSlope fields developed by companies otherthan BP Exploration (Alaska) Inc. orConocoPhillips Alaska Inc.
Before Pioneer Natural ResourcesAlaska Inc. requested royalty relief for theOooguruk unit in 2005, the three previousrequests all came from multinational com-panies.
First, BP requested relief for the MilnePoint unit. The company withdrew theapplication before the state issued a ruling.BP later developed North Slope field with-out relief.
Next, Union Oil Company of Californiarequested royalty relief on production fromall their Cook Inlet platforms. Concludingthat some of the platforms were beyond helpand others were economic under existingconditions, the Department of NaturalResources offered to reduce the royalty rateon production from some of the platforms.Unocal instead pursued a legislative solu-tion, successfully lobbying for a law thatautomatically reduces royalty rates whenproduction from a platform drops below acertain level.
Then, Phillips sought royalty relief for itsTyonek Deep prospect in Cook Inlet. Thecompany later withdrew the application, inpart because of complications arising fromits subsequent merger with Conoco and inpart because the state needed more informa-tion.
The Tyonek Deep prospect remainedundeveloped.
Oooguruk in 2005Those requests all came before 2003,
when the state made two major changes tothe royalty relief process: allowing relief tobe granted for an uneconomic portion of anotherwise economic field and allowing reg-ulators to offer royalty relief on a slidingscale taking into account various factorssuch as oil prices, development costs andtotal recovery.
In all four cases since that change,including the current case at Nuna, the statehas either rejected the request or provided amore limited form of relief than the compa-ny wanted.
In 2005, Pioneer Natural Resourceswanted a royalty reduction on nine leases atOooguruk — four at the unit with a 12.5percent royalty rate and a 30 percent netprofit sharing provision and five in a pro-posed expansion area with a 16.6667 per-cent royalty.
Pioneer wanted the royalty rate on allnine leases reduced to 5 percent. Withoutthe change, the company told the said itcould not “vigorously pursue” develop-ment.
The unit included 18 leases, altogether.The state agreed to modify all nine leas-
es but also made all nine leases net profitsharing, which required Pioneer to share 30percent of its profits from those leases withthe state.
The ruling was the first time the state hadused its authority to grant royalty relief to anundeveloped field. Pioneer bought theOooguruk unit into production in mid-2008.
Nikaitchuq in 2006 and 2008In 2006, Kerr-McGee Corp. wanted a
reduction on 14 leases around its Nikaitchuqprospect — 12 leases with a 16.6667 per-cent royalty rate and two leases with 12.5percent royalty rates and 30 percent netprofit sharing. The request covered fourleases at the Nikaitchuq unit, six at theneighboring Tuvaaq unit, one in theKuparuk River unit, one in the Milne Pointunit and two leases just outside the
l F I N A N C E & E C O N O M Y
Royalty relief used sparingly in AlaskaA proposal to lower Nuna royalty rates is only the seventh request over the past 18 years; would be third approval
12 PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014
see ROYALTY RELIEF page 15
By ALAN BAILEYPetroleum News
Following the 2012 listing of the Arcticringed seal as threatened under the
Endangered Species Act, the NationalMarine Fisheries Service has now pro-posed a designation of critical habitat forthe animals. The proposed critical habitatregion encompasses the entirety of the U.S.Beaufort and Chukchi seas, and the north-ern part of the Bering Sea. Critical habitatfeatures include the sea-ice habitat that theseals use for lairs, and for activities such asbasking and molting; critical features alsoinclude the seals’ primary prey: Arctic cod,saffron cod, shrimps and amphipods.
Assuming that the critical habitat desig-nation is finalized, any activity in theimpacted region involving federal govern-ment actions such as federal permitting willtrigger a consultation with the FisheriesService to assess whether the activity maydamage any of the critical habitat features.If a likely adverse impact is anticipated, theFisheries Service will impose mitigationrequirements to prevent the damage.
“After reviewing the best availableinformation, our scientists identified thehabitat features that are essential for sus-taining Arctic ringed seals — a species thatis likely to become endangered in the fore-seeable future due to climate change,” saidNMFS Alaska Regional AdministratorJames Balsiger, when announcing the pro-posed designation on Dec. 2. “We look for-ward to hearing from members of the pub-lic on this proposal.”
Public comments on the proposed des-ignation must be filed with the FisheriesService by March 3.
Shrinking sea iceThe ringed seal is one of a series of ani-
mal species that have been listed or consid-ered for listing, not because of a currentshortfall in their numbers, but because of aperceived threat from the impacts of globalwarming on the sea ice on which the ani-mals depend.
Ringed seals nurse and protect theirpups in snow caves, which are threatened
by the late formation of ice in the fall, byrain in the late winter and by the earlybreakup of sea ice in the spring, theFisheries Service says. A decline in snowdepths is projected to result by the end ofthe century in depths that are too shallowfor cave formation, the agency says.
Accordingly, the Fisheries Service’sproposed critical habitat region encom-passes the entire area of ocean within theU.S. economic zone that can be coveredwith winter sea ice and where the ringedseals are found. Critical habitat within thatregion consists of sea ice appropriate foruse by the seals for shelter and other activ-ities, with the seals’ primary prey also seenas critical to the seals’ survival.
Economic impactsUnder the terms of the Endangered
Species Act the Fisheries Service must
conduct an analysis of the economicimpacts of its critical habitat designation.And, as in the habitat designation for thepolar bear, another species listed undersimilar circumstances, the agency hasclaimed that the only cost of the habitatdesignation would consist of the cost ofagency consultations that the designationwould trigger. For the oil and gas industry,for example, the agency says that the criti-cal habitat designation, in itself, will notcause any project modifications beyondthose already required to mitigate adverseimpacts on the seals.
The agency estimates the total cost ofthe critical habitat designation over 10years as $1.3 million in 2012 dollars, with$356,000 of that cost to be carried by theFisheries Service, $968,000 by privateentities and $3,000 by local governments.
Concerns in AlaskaClimate change related Endangered
Species Act listings such as those of thepolar bear and the ringed seal, with vastareas of critical habitat, have caused con-cern in Alaska because of worries aboutpotential impacts on economic activitiesaround the coast and offshore.Justifications of the listings depend on cli-mate models that predict climate trendsmany years into the future.
“This is an unprecedented attempt toplace restrictions on a larger than Texas-sized area of water surrounding our state,”said Sen. Lisa Murkowski, R-Alaska, inresponse to the announcement of the pro-posed ringed seal critical habitat. “I remainskeptical that the listing of ringed sealsbased on a 100-year weather projectionwas justified, and I am concerned that thisdesignation would severely impact anyeconomic development from Northwest allthe way to our border with Canada.” l
l E N V I R O N M E N T & S A F E T Y
Ringed seal critical habitat proposedNMFS wants to designate the entire U.S. Beaufort and Chukchi seas and the northern Bering Sea as critical to the species’ survival
PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014 13
Providing
project management
professionals for major
projects throughout
Alaska and the world
for over 30 years.
www.hawkpros.com907.278.1877
The proposed region of critical habitat for the Arctic ringed seal includes the entire U.S. eco-nomic zone in the Beaufort Sea, the Chukchi Sea and the northern part of the Bering Sea.
The Arctic ringed seal, listed as threatenedunder the Endangered Species Act, has a lifestyle dependent on sea ice.
NA
TIO
NA
L M
AR
INE
FISH
ERIE
S SE
RVIC
E
NA
TIO
NA
L M
AR
INE
FISH
ERIE
S SE
RVIC
E
By KRISTEN NELSONPetroleum News
Alaska North Slope crude oil produc-tion averaged 537,644 barrels per
day in November, up 2.98 percent froman October average of 522,094 bpd, butdown 3.38 percent year-over-year from556,470 bpd in November 2013.
The largest month-over-month changewas at the BP Exploration (Alaska)-oper-ated Lisburne field, which averaged23,155 bpd in November, up 214 percentfrom an October average of 7,363 bpd.The field was completely offline foralmost two weeks in October as plannedmaintenance was wrapped up before theonset of winter. The field was still ramp-ing up at the beginning of November, butafter the first two days of the month pro-duction was consistently more than20,000 bpd. Lisburne production includesPoint McIntyre, Niakuk and Raven.
Information for November comesfrom the Alaska Department ofRevenue’s Tax Division which reportsNorth Slope oil production consolidatedby major production centers and providesdaily production and monthly averages.
More detailed data, including Cook Inletand individual North Slope fields andpools, is reported by the Alaska Oil andGas Conservation Commission on amonth-delay basis.
Most other fields upThe BP-operated Prudhoe Bay field,
the Slope’s largest, averaged 313,705 bpdin November, up 0.9 percent from anOctober average of 310,950 bpd, butdown 2.3 percent year-over-year from aNovember 2013 average of 321,125 bpd.Prudhoe volumes include satellite pro-duction from Aurora, Borealis, MidnightSun, Orion, Polaris, Sag River andSchrader Bluff, as well as the Milne Pointand Northstar fields. Hilcorp Alaska took
over operation of Milne Point andNorthstar from BP in November.
AOGCC data shows Milne Point aver-aged 18,177 bpd in October, down 6.76percent from a September average of19,494 bpd. Northstar averaged 8,735bpd in October, down 0.6 percent from aSeptember average of 8,787 bpd.
The BP-operated Endicott field aver-aged 9,098 bpd in November, up 5.73percent from an October average of 8,605and up 10.2 percent from 8,255 bpd inNovember 2013. Endicott includes SagDelta, Eider, Minke and the SavantAlaska-operated Badami field.
AOGCC data for October shows thatthe Badami field averaged 1,036 bpd,basically level with September produc-tion of 1,037 bpd.
The ConocoPhillips Alaska-operatedAlpine field averaged 49,306 bpd inNovember, up 0.85 percent from anOctober average of 48,891, but down17.6 percent year-over-year from aNovember 2013 average of 59,837 bpd.Alpine production includes satellite pro-duction from Fiord, Nanuq and Qannik.
The ConocoPhillips-operated KuparukRiver field averaged 142,400 bpd inNovember, down 2.66 from an Octoberaverage of 146,285, but up 3.5 percentyear-over-year from a November 2013average of 137,555.
Kuparuk production includes satelliteproduction from Meltwater, NortheastWest Sak, Tabasco, Tarn and West Sak, aswell as from the Eni-operated Nikaitchuqfield and the Caelus Alaska-operatedOooguruk field.
October data from AOGCC shows thatKuparuk and its satellites averaged108,923 bpd, while Nikaitchuq andOooguruk combined averaged 38,493bpd, accounting for 26 percent of the vol-ume summed under Kuparuk inDepartment of Revenue figures.
Nikaitchuq averaged 24,163 bpd inOctober, down 3.86 percent from aSeptember average of 25,133, but up 60.6percent from an October 2013 average of15,044 bpd, while Oooguruk averaged14,330 bpd in October, up 14 percentfrom a September average of 12,568, but
up 121.7 percent year-over-year from anOctober 2013 average of 6,463 bpd.
Cook Inlet up 2.3 percentOctober crude oil production from
Cook Inlet averaged 18,836 bpd, up 2.3percent from a September average of18,413 bpd. At 14,138 bpd, Hilcorp-oper-ated fields account for the majority ofCook Inlet production, followed by CookInlet Energy at 2,693 bpd andExxonMobil subsidiary XTO at 2,005.
AOGCC figures show the largestmonth-over-month increase at the CookInlet Energy-operated West McArthurRiver field, which averaged 1,662 bpd inOctober, up 21 percent from a Septemberaverage of 1,373 bpd.
Hilcorp-operated Trading Bay fieldaveraged 3,303 bpd in October, up 19.45percent over September production aver-aging 2,765 bpd.
Cook Inlet Energy-operated RedoubtShoal averaged 1,031 bpd in October, up6.37 percent from a September average of969 bpd, followed by XTO-operatedMiddle Ground Shoal, which averaged2,005 bpd in October, up 4.68 percentfrom a September average of 1,916 bpd.
The Hilcorp-operated Granite Pointfield averaged 2,800 bpd in October, up0.4 percent from a September average of2,788 bpd.
The largest month-over-month declinewas at the Hilcorp-operated SwansonRiver field, which averaged 2,300 bpd inOctober, down 11.6 percent from aSeptember average of 2,602 bpd.
The Hilcorp-operated McArthur Riverfield, Cook Inlet’s largest, averaged 5,617bpd in October, down 4.5 percent from5,879 bpd in September, followed by thearea’s smallest field, Hilcorp’s BeaverCreek, which averaged 118 bpd inOctober, down 2 percent from aSeptember average of 120 bpd.
ANS crude oil production peaked in1988 at 2.1 million bpd; Cook Inlet crudeoil production peaked in 1970 at morethan 227,000 bpd. l
l E X P L O R A T I O N & P R O D U C T I O N
ANS production up 3% month over monthNorth Slope crude oil averages 537,644 bpd in November; Cook Inlet crude averages 18,836 bpd in October, up 2.3% from September
14 PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014
The BP-operated Prudhoe Bayfield, the Slope’s largest, averaged313,705 bpd in November, up 0.9percent from an October average
of 310,950 bpd, but down 2.3percent year-over-year from a
November 2013 average of321,125 bpd.
By KRISTEN NELSONPetroleum News
The Alaska Department of Natural ResourcesDivision of Oil and Gas has issued a final best
interest finding for Alaska Peninsula areawide oil andgas sales from 2015-24.
In a Nov. 26 finding Bill Barron, division director,said potential benefits of sales in the area outweigh pos-sible inverse impacts and that the sales will best serve theinterests of the state.
The sale area is some 4 million gross acres onshoreand 1.75 million gross acres offshore in state waters,with 1,047 tracts ranging from 640 to 5,760 acres on thenorth side of the Alaska Peninsula. The annual AlaskaPeninsula areawide sale is held in the spring in conjunc-tion with the Cook Inlet areawide sale.
The state said significant new information about thepetroleum resource potential of the area has been foundsince the last best interest finding was issued in 2005,
“the result of several years of integrated field and sub-surface research led by DNR geologists” (see “Theallure of the Alaska Peninsula” in July 27, 2014, issue ofPetroleum News).
Reasonable hydrocarbon potentialSince 2005, results have become available from sev-
eral years of “integrated field and subsurface researchled by DNR geologists” from the Division of Geologicaland Geophysical Surveys and the Division of Oil andGas, the decision said.
Past exploration has not yielded commercial produc-tion, but “there are indications that the necessary com-ponents of active petroleum systems may be present.”
DNR said it anticipates that with “a robust, regional-ly extensive grid of modern scientific data that will bedeveloped through this phased leasing process” andbased on that work “much higher estimates of undiscov-ered oil and gas will likely result, than previously esti-mated by the U.S. Geological Survey.”
DNR said 35 exploration wells have been drilled inthe Alaska Peninsula area since 1902, 11 within theboundaries of the sale area.
USGS estimated mean undiscovered, technicallyrecoverable onshore Alaska Peninsula reserves at 9 mil-lion stock tank barrels and 188 billion cubic feet of nat-ural gas in 1996, and assigned a 32 percent chance thatthe area is capable of producing at least one technicallyrecoverable accumulation, with technically recoverablenot considering economic factors.
Based on recent field and subsurface research, DNR“staff are of the opinion that future resource assessments,if informed by a robust, regionally extensive grid ofmodern seismic data, would likely result in much higherestimates of undiscovered oil and gas.”
DNR also noted that because the Alaska Peninsula isremote, the area “presents logistical and economic chal-lenges for exploration and development operations.” l
l L A N D & L E A S I N G
State issues Peninsula sale final BIFDecision covers 10 years of areawide oil and gas lease sales, includes significant new information based on field, subsurface work
Nikaitchuq unit boundary.While the Department of Natural
Resources initially signaled a willingness toextend relief, officials waited to issue a deci-sion until after the state approved thePetroleum Profits Tax. Ultimately, the statedecided that PPT “materially improved” theeconomics of the project — to the tune of$120 million fewer taxes — and rejected theapplication.
By 2007, Eni US Operating Co. hadacquired the prospect. The American sub-sidiary of the Italian multinational mergedTuvaaq into the Nikaitchuq unit and askedfor relief reduction on Schrader Bluff andSag River production for 12 leases in theexpanded 18-lease unit. Of the 12 leases, 11had a 16.6667 percent royalty rate and onehad a 12.5 percent royalty and 30 percentnet profit share. Eni wanted a 5 percent roy-alty rate.
Ultimately, the state agreed to reduce theroyalty rate on the 11 leases with the higherroyalty rate. The state said the remaininglease did not appear to overlie an oil pool.
Conditions at NikaitchuqThe state added various conditions,
though, which proved prescient.First, under the agreement, the reduction
only goes into effect when the deliveredprice of Alaska North Slope crude oil fallsbelow an inflation-adjusted price of $42.64.Using inflation figures from the U.S. Bureauof Labor Statistics, that threshold is current-ly about $47.02. Even with the dramaticdeclines in oil prices over the past six
months, the spot price of ANS West Coastprice has only recently dipped below $70per barrel.
The reduction would also go into effect,regardless of prices, if production fell below4,000 barrels per day during the first 10years of production (barring initial rampup).
Second, the reduction only covered pro-duction from the Schrader Bluff OA sands.
To date, that interval has been the focus ofdevelopment. But Nikaitchuq is currentlyappraising the economics of the SchraderBluff N sand, which would not get relief.
Third, the reduction only lasts for the first25 years of sustained development. Barringany major shutdowns at the field, that dead-line would arrive sometime in early 2036.
The decision also required Eni to meetcertain spending targets for the first six years
and the first 11 years of development. Whilespending figures are proprietary, Eni sanc-tioned a $1.45 billion development programin 2008 and appears to be nearing the end ofthat initial program. The total 11-yearspending requirement from the state was$1.398 billion. l
By ALAN BAILEYPetroleum News
With an offshore oil spill being a worst-case night-mare both for the oil industry and for anyone con-
cerned about protecting the marine environment, researchcontinues in how to most effectively deal with oil dis-charged into seawater. In its latest newsletter, Ohmsett, theBureau of Safety and Environmental Enforcement’s NewJersey test facility, has reported some recent testing of newresponse technologies, including new methods for the mon-itoring of spilled oil and new oil skimming systems.
The Ohmsett facility consists of a long pond-like tankthat can simulate a variety of ocean conditions, for the test-ing of oil spill response equipment and technologies.
Measuring droplet sizeOne project conducted at Ohmsett this year involved the
evaluation of a new acoustic technique for measuring oildroplet sizes, when crude oil released underwater is mixedwith oil dispersant in the presence of methane gas, a situa-tion which prevailed during the Gulf of Mexico DeepwaterHorizon disaster. The testing formed part of a project fund-ed by BSEE and conducted by Paul Panetta from AppliedResearch Associates Inc. and a team of researchers fromVirginia Institute of Marine Science and College of Williamand Mary.
Laser-based optical systems which are used for measur-ing subsurface oil droplets run into problems when highconcentrations of oil obstruct the passage of light throughthe fluids. The concept behind the new technology is,instead, to use a sonar system to generate an acoustic imageof the oil plume, measuring the way in which the sound fre-quency responds to the scattering effect of the gas and oil.
“Acoustic measurements are needed because the currentmethods using the LISST (laser in-situ scattering transmis-siometer) are not suitable for subsurface releases where theconcentration of oil is too high for the LISST,” Panettaexplained. “The LISST also ceases to operate when its opti-cal window becomes coated with oil.”
Measuring the resonanceThe Ohmsett testing involved fitting oil and dispersant
nozzles, and a gas bubbler, onto a submersible frame placedin the facility’s tank. Upon the subsurface release of oil, dis-persant and methane, instruments used low-frequencysound to excite the acoustic resonance of gas bubbles andthe acoustic response of both the oil and the gas, with highfrequency sound also being used to measure the response ofoil and gas to the acoustic signals.
LISST equipment was also used for measuring oildroplet and gas bubble volume and size distributions, pre-sumably to verify and calibrate the results of using theacoustic technique.
Oil and ice coverageAnother project at Ohmsett this year involved improve-
ments to the way in which the facility measures oil and icecoverage when testing spill response techniques in simulat-ed sea-ice conditions — the facility has particular value inthis type of testing, which can be difficult or impossible toconduct in the ocean itself.
Ohmsett uses photographic imagery for measuring theice and oil, through a very time consuming process involv-ing a pixel-by-pixel analysis of the imagery. A project fund-ed by BSEE and conducted by MAR Inc. and OceanImaging of California involved the development of imagingtechnology that enables measurement at near real-timespeeds, thus presumably improving the efficiency withwhich spill response tests can be conducted in ice-ladenwater.
The project employed existing technology to collectcamera images and thermal data from the Ohmsett tank,using engineered saltwater ice. The researchers then usedthe collected data to calibrate and refine computer softwareused for image and data processing. The team returned toOhmsett to test the results. The consequence was the con-struction of a compact device that can be deployed to mapthe extent of a simulated oil spill, differentiating betweenoil, ice and open water, and providing data about the thick-ness of oil between and around ice blocks.
Skimming systemsAlso this year, Ohmsett has provided the venue for the
testing of two new oil skimming systems. One of these, developed by French company Ecoceane
and called the Workglop 128, consists of a 40-foot, self-pro-pelled skimming vessel, with integrated boom arms and anintegrated skimming system that sucks oil from the watersurface. The vessel was tested at speeds ranging from oneto three knots in both calm and wave conditions, using amedium oil and then a heavy oil.
“We have worked for seven years on the research anddevelopment using advanced software simulations and pro-totypes to achieve the technology represented by theWorkglop 128,” said Benjamin Lerondeau, technical man-ager for Ecoceane. The system can collect oil in wave con-ditions and follow the movement of the oil, while also cre-ating less emulsion when collecting fluids than other sys-tems, Lerondeau said.
Potential future developments include fitting the tech-nology to larger vessels, not specifically intended for oilspill response, and the development of a system for therecovery of oil in icy water, he said.
Oil shavingAnother skimming system tested at Ohmsett, the
OilShaver system, developed by Norwegian companyHusen AS, consists of a boom-like structure which is towedthrough the water and which shaves oil from the water sur-face. The recovered oil is directed into a containment area,from where it flows into a chamber with an oil skimmer anda hydraulic offload pump. Apparently, the system had beentested previously at Ohmsett but required some redesignfollowing trials of the system during a Norwegian oil-on-water exercise.
Ingvar Huse, the system designer, said that the latest test-ing at Ohmsett demonstrated that system is now ready forthe marketplace. l
l E N V I R O N M E N T & S A F E T Y
BSEE facility conducts response testingTests technology for detection of oil in sea ice, technology for monitoring of dispersed oil and two new oil skimming systems
PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014 15
continued from page 12
ROYALTY RELIEF
16 PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014
ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS
Companies involved in Alaska and northern Canada’s oil and gas industry
All of the companies listed above advertise on a regular basis with Petroleum News
AAcuren USAAECOM EnvironmentAir LiquideAircaft Rubber Mfg. (ARM-USA)Alaska Analytical LaboratoryAlaska Clean Seas (ACS)Alaska CommunicationsAlaska DreamsAlaska Marine Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Alaska RailroadAlaska Rubber Alaska Steel Co.Alaska TextilesAlaska West Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Alpha Seismic CompressorsAmerican Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Arctic ControlsArctic Slope Telephone Assoc. Co-op.Arctic Wire Rope & SupplyARCTOSArmstrong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3ASRC Energy ServicesAT&T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Avalon Development
B-FBPBaker HughesBald Mountain Air ServiceBattelle AnchorageBombay DeluxeBrooks Range SupplyCalista Corp.Canrig Drilling TechnologyCarlile Transportation ServicesCCI Industrial Services LLCCGGClearSpan Fabric StructuresCN RailColville Inc.Computing Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2CONAM ConstructionConocoPhillips AlaskaConstruction Machinery IndustrialCook Inlet EnergyCrowley SolutionsCruz Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Delta LeasingDenali IndustrialDET-TRONICSDowland-Bach Corp.
Doyon Anvil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Doyon DrillingDoyon, LimitedDoyon Universal ServicesEgli Air Haul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17exp Energy ServicesExpro Americas LLCF. Robert Bell and AssociatesFairweatherFive Star Oilfield Services . . . . . . . . . . . . . . . . . . . . . . . . . . .4Flowline Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19FluorFoss Maritime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
G-MGBR Oilfield Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6GCI Industrial Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12GCR Tires & ServiceGlobal Diving & SalvageGlobal Geophysical ServicesGMW Fire ProtectionGolder AssociatesGreer Tank & WeldingGuess & Rudd, PCHawk Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13HDR Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17IFR WorkwearInspirationsJudy Patrick PhotographyKakivik Asset Management LLCKenworth AlaskaKuukpik Arctic ServicesLast Frontier Air VenturesLearn to ReturnLister IndustriesLittle Red Services, Inc. (LRS)Lounsbury & Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Lynden Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Lynden Air Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Lynden Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Lynden International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Lynden Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Lynden Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20MagTec AlaskaMapmakers of AlaskaMAPPA TestlabMaritime HelicoptersM-I SwacoMiller EnergyMotion Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
N-PNabors Alaska Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Nalco
NANA WorleyParsons
NASCO Industries Inc.
Nature Conservancy, The
NEI Fluid Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
NMS Lodging
Nordic Calista
North Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Northern Air Cargo
Northern Electric Inc.
Northrim Bank
Opti Staffing Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Pacific Alaska Lumber
PacWest Drilling Supply
PENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Pebble Partnership
Petroleum Equipment & Services . . . . . . . . . . . . . . . . . . . . .7
PND Engineers Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
PRA (Petrotechnical Resources of Alaska)
Price Gregory International
Remote Access Technology (RAT)
Resource Development Council
Ravn Alaska (formerly Era Alaska) . . . . . . . . . . . . . . . . . . .10
Q-ZSAExploration
Security Aviation
Sophie Station Suites
STEELFAB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Stoel Rives
Taiga Ventures
Tanks-A-Lot
The Local Pages
Think Office
Total Safety U.S. Inc.
TOTE-Totem Ocean Trailer Express . . . . . . . . . . . . . . . . . . . .18
Totem Equipment & Supply
TTT Environmental
Udelhoven Oilfield Systems Services
UMIAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Unique Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Univar USA
URS Alaska
Usibelli
Verizon
Vigor Alaska
Volant Products
Weston Solutions, Inc.
Oil Patch BitsErin Gleason joins AECOM’s Anchorage team
AECOM said it is pleased to announce the recent appointment ofErin Gleason as Scientist I, Air Quality, for its environmental businessline in Anchorage, Alaska. Gleason will be working with Mark Hodgesand Hannah Kroon as part of AECOM’s Alaska based air quality prac-tice. This fall Gleason completed her masters of environmental chem-istry at University of Alaska Fairbanks. Previously, she was the intern atthe Alaska Department of Natural Resources working with the PublicInformation Center and Division of Mining, Land and Water. Her areasof expertise include atmospheric chemistry, aquatic chemistry andchemistry of sea ice. Gleason was born and raised in Fairbanks.
89 Crowley vessels honored with environmental awards Eighty-nine Crowley Maritime Corp.-owned and operated vessels were honored with
Certificates of Environmental Achievement for years of safe operations during the 11th annualChamber of Shipping of America awards ceremony Nov. 12. Crowley received an award foreach vessel that worked at least two consecutive years without an environmental incident. The89 vessels have logged a combined 968 years of service without incident, a true testament toCrowley’s commitment to keeping harbors and oceans clean.
Each year, CSA invites all ownersand operators of vessels that work onoceans or inland waterways to nomi-nate their vessels for EnvironmentalAchievement awards. Approximately1,386 vessels from 58 companies,including Crowley, were recognizedthis year at the ceremony held inWashington, D.C. The honored vesselsaccumulated a total of 10,749 years ofsafe operations.
“Safety is the No. 1 core value atCrowley. This includes the safety of ourpeople and those around them as wellas the environment,” said MikeGolonka, vice president, ship management. “These awards recognize the rigorous work of ourcrews, who ensure that our vessels operate safely and in an environmentally responsible man-ner.” Forty-seven of Crowley’s vessels have gone without incident for 10 or more consecutiveyears, including the following: Saturn, 45 years; Kuparuk River and Kavik River, each with 44years; and Sag River, 39 years. Crowley has been honored with Environmental Achievementawards each year since at least 2005.
ERIN GLEASON
CO
URT
ESY
CR
OW
LEY
Left to right, first row: Francis Lamb, Donna Sears,Tara Weber; second row: Mike Lamb, Steve Sears,Tim Weber, Andy Legge; and third row: KevinCameron and Mark Richards
welcomed the new administration in pressreleases following the inauguration.
House Speaker Mike Chenault, R-Nikiski, congratulated the governor andlieutenant governor on their victory.
“Now the work of governing begins,” hesaid. “We look forward to learning of thenew administration’s plans for the FY2016state operating budget and the supplementalbudget for the current fiscal year. TheHouse is willing to work with the newadministration to continue our record oflowering the operating budget, and priori-tizing services for Alaskans.”
Incoming House Majority Leader
Charisse Millett, R-Anchorage, saidAlaskans voted for the Walker-Mallott tick-et “because they set aside their partisan dif-ferences and agreed to work together tomove Alaska forward.” She said the major-ity caucus has “partisan and regional diver-sity; it’s something we’ve prided ourselveson since I’ve been in the Legislature, andI’m glad to see that spirit now on theCapitol’s third floor.”
The House majority press release notedcrude oil prices are lower than forecast andsaid Walker promised in his campaign toexpand Medicaid while cutting the budget16 percent.
House Minority Leader Chris Tuck, D-Anchorage, said he has “high hopes that theHouse Democratic Caucus can help the new
Governor and Lt. Governor identify howbest to address a number of significantissues including expanding Medicare,advancing a natural gas pipeline and weath-ering the current fiscal crisis.”
House Minority Whip Max Gruenberg,D-Anchorage, said: “Declining oil produc-tion coupled with the unanticipated lowprice for oil means less money for the stateof Alaska and some tough decisions for thenew administration.”
“I supported the Unity Ticket of Walkerand Mallott as did Democrats across thestate,” said Democratic Floor Leader GeranTarr of Anchorage. “If they stay true to thepeople that voted them into office and workto protect the best interests of the State thenthe Walker-Mallott administration will be asuccess.” l
PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014 17
Hello ProgressThis is where great begins.
Anchorage 907.644.2000
hdrinc.com
ferent approaches. I’m hoping we don’tstart over again on the gas pipeline.
Petroleum News: You’ve mentionedthe need for not losing sight of the ASAPline and declining revenues, can thestate afford stay on both paths?
Meyer: We can’t afford both lines. Weknow that. The bullet line is our backupplan. We still want and need to havesomething in-state. The big line goesthrough — I understand there will be theoff takes.
I think for sure what we can’t affordis a Watana-Susitna Dam and I don’tbelieve we would even need it if we hadthe bullet line or the big line. I thinkGov. Parnell wanted to keep Susitna onthe books just in case, but once we makea commitment to the gas line, the othersmaller projects will fall off. s
I think we’ll know on the big linelater next year whether it’s a go or no-go, and I don’t think it will cost us muchmore to keep both on the table in theinterim. We need to stay with the differ-ent gas pipelines until we know for surewhich one is going to go or not going togo. That should be fairly soon.
Petroleum News: Can the Legislaturedo anything during the upcoming sessionto assist itself to prepare for the end of2015 when a contract is due? Perhapsupdates from consultants or a sympo-sium, which you’ve done before.
Meyer: I don’t think enough is knownyet. It’s a bit too early for me to say onthat one right now. I don’t think any ofus will be opposed to a special session ifit advances the gas pipeline. I think whatmight slow us down a bit is the transi-tion with the new administration.
Petroleum News: OK, let’s talk aboutthe new administration. What kind ofrelationship do you expect? The incom-ing chief of staff (Jim Whitaker) wascritical of you, Mike Hawker and MikeChenault of being too close to the indus-try during the oil tax debate in 2006.
Meyer: I can’t speak for my other col-
leagues. Jim Whitaker and I served inthe Legislature together. I always foundhim to be a nice guy. We always gotalong real well. We’ve always disagreedon oil and gas issues, and probably willcontinue to disagree. Yeah, some of thename calling in the past as far as I’mconcerned is forgiven. It’s hard to forgetthem. Again, it had to do with oil taxesand I don’t just see oil taxes being anissue any more. So I’m not too con-cerned about it. I think Jim realizes that Irepresent a group of 35,000 people in mydistrict.
The people in my district, at least amajority of them, agree with my positionon oil taxes and oil and gas issues. Thefact that I work part time for an oil com-pany (ConocoPhillips) I think is irrele-vant. For them to not have a say on avery important issue like oil taxes, Ithink Jim would agree it’s not very fairto 35,000 people in my district. Whenyou throw Peter Micciche (Kenai sena-tor) in there too, that’s 70,000. So nowyou’ve got a group people the size ofJim’s city — Fairbanks — that wouldnot have a say on oil and gas issues. Ithink Jim realizes that.
I can’t really tell you that I’ve workedclosely with any chief of staff. I didn’twork with Jim Clark too much and I did-n’t work with (Mike) Nizich too much. Idon’t think it would be a problem at all.I think we are all trying to do what’s bestfor the state of Alaska and we have dif-ferent approaches on how to do that.
Petroleum News: Still on the topic ofa new administration, the announcedappointment for Department of NaturalResources commissioner is Mark Myers.He was among many who left DNR enmasse during the Murkowski administra-tion. What are your thoughts on hisappointment?
Meyer: I actually knew Mark when heworked at ARCO and I worked atARCO. He’s got a Ph.D. in geology andis a smart guy. I know he was prettyupfront about the repeal of SB 21 as wasWalker as was Whitaker as were prettymuch all the people who seem to bemaking up the administration, so I’mtruly glad that SB 21 is behind us.
Again, I think a lot has been learnedsince we started this process underMurkowski.
That’s the wild card: What is going tobe the approach on the gas pipeline? Arewe going to start new or are we going tostart where we are at and move forwardrather than recreate the wheel? If westart over, I’m afraid it’s going to delaythe project. I think we are all anxious toget a gas pipeline sooner rather thanlater. The state definitely needs the rev-enue. I think everyone is aware of thefactors and concerns, and we are allgoing to work together and do what’sbest. Yeah, the gas pipeline, in my mind,is one big question mark.
Petroleum News: So what do youthink you can do as Senate president toadvance the project?
Meyer: Governor Walker and I havealready talked a couple of times. I thinkit’s good that he is willing and wants towork with the Legislature. I don’t knowif he’s talked to the speaker yet. I doknow the speaker and I have an appoint-ment with him in the middle ofDecember and Governor Walker isscheduled to talk to the entire majoritycaucus also in the middle of December.
I think as Senate president I will beable to advocate for all of the work thatwe have done on the gas pipeline, andthat will be my role now. The fundingwill come from the new co-chairs inFinance. It will be a challenge becausethere isn’t much money available.
So that’s how I see my role now:work with the governor; let him knowwhat our feelings are in the majoritycaucus as it pertains to the gas pipeline,try to keep the communication openbetween the executive branch and theappropriators in the legislative branch.We need each other. He needs us as theappropriators and we need him as theexecutive branch.
Also, we will be working closely withthe House. I think you alluded to the factthat Chenault and I were co-chairs ofFinance in the House. We served togeth-er. We had a good relationship. It’s cer-tainly my intent that we work well withthe executive branch.
Petroleum News: Speaking of yourrelationship with the speaker and work-ing with the executive branch, you andthe speaker took a lot of heat separatefrom Jim Whitaker for connections to theindustry. Now that you’re Senate presi-dent, and the face of the Senate, do yousee that happening further or are youaccustomed to it by now?
Meyer: I’m accustomed to it. I justkind of let it go in one ear and out theother ear. I used to be concerned about itand again, we are citizen legislators, weare all going to have jobs and conflicts atone point or another. We have a lot offishermen in the Legislature who willhave fisheries conflicts.
But people know that when they votefor you and the people who have givenyou their trust and want them to repre-sent them down in Juneau, if they areOK with that, then I’m OK with it aswell. They keep asking me to go backand represent them and I’m honored todo so.
I know I’ll do what’s best not only formy district but also the state of Alaska.Where I work and who I work for on apart-time basis is kind of irrelevant tothe whole process. If I don’t representthe people who asked me and trust me torepresent them, they simply aren’t goingto vote for me.
I’ve been fortunate to be voted intooffice for 22 years now, so no, I’m notworried about it anymore. There areobviously, especially when it comes tooil and gas issues because it’s very emo-tional, are going to be people who aremad at me for voting the way I did.There are just some people who hate theoil companies, and there are going to bepeople who are mad at me for voting theway I did, and there’s nothing I can doabout that.
I will say though when we had takenup oil taxes during the bipartisan coali-tion, and I voted for the oil tax the bipar-tisan group brought forward, I neverheard any concerns, so I think it’s kindof partisan thing. It’s really just the busi-ness we are in and I don’t let it botherme anymore. l
continued from page 5
MEYER Q&A
Offshore Operations
ilmingAerial F
Crew Haul
orkMountain W
wwweb:Wegliair@bristolbay
907-246-3554 Ph:
136-ft Landing Craft
F L I R Equipped
Aerial Survey
Sling Load Operations
•
•
•
•
.com.egliairwww.comegliair@bristolbay
907-246-3654 Fx:
continued from page 7
NEW ADMINISTRATION
sixth year. Fairbanks Natural Gas would buy
between 850 million and 950 million cubicfeet each year and would provide Hilcorpwith good faith estimates of its expecteddemand on both a monthly and annualbasis. Hilcorp would be obligated to pro-vide no more than 50,000 gallons of lique-fied natural gas on any day. Those supplies
would cover the existing customer base, notthe additional customers Fairbanks NaturalGas intends to reach through an expansionof its distribution grid — 32 miles addedthis past summer and another 50 milesplanned for next summer. Those customersmust wait for additional supplies to becomeavailable to join the system. “FNG feelsconfident that expansion of LNG capacityat Point MacKenzie will happen faster withHarvest,” Fairbanks Natural Gas attorneyMark Figura wrote in recent filings to thecommission.
Titan currently owns LNG facilityFairbanks Natural Gas affiliate Titan
Alaska LLC currently owns the PointMacKenzie facility, which prepares CookInlet gas for delivery to Fairbanks marketsby tanker trucks along the Parks Highway.The current Titan supply starts at a base rateof $15.06 per mcf. Titan purchases its gassupplies from Hilcorp. Those supplies arepriced under the terms of consent decreethat increases by 4 percent each year. As aresult, Fairbanks Natural Gas would payincreasingly less, each year, under the pro-posed Hilcorp contract.
Another difference between the two con-tracts is the term. The proposed Hilcorpcontract would run through 2025, while theexisting Titan contract is set to expire in2018.
Fairbanks Natural Gas also gets an inter-ruptible supply of liquefied natural gas fromConocoPhillips Alaska Inc. The deliveredprice for that smaller contract is currently$17.35 per mcf. The price is set to increaseto $17.85 per mcf this coming winter.
WesPac Midstream LLC recentlyoffered to provide supplies at an estimatedprice of $14.57 per mcf starting 2017 fromits proposed 250,000-gallon per day Cook
Inlet liquefied natural gas facility. The pro-posal was “essentially a take-or-pay agree-ment” on a 20-year term, according toFairbanks Natural Gas, which could havecreated potential liabilities should efforts tobuild a North Slope natural gas pipelineultimately succeed.
Fairbanks Natural Gas also believes theproposed Hilcorp contract would provide abetter deal than supplies purchased from aproposed North Slope liquefied natural gasterminal, although the utility acknowledgesthat the project is still being “studied anddesigned.”
The Alaska Industrial Development andExport Authority and the global infrastruc-ture firm MWH Americas Inc. are jointlydeveloping that project. The project is beingfunded, in part, through state bonds, loansand grants. “Without the large subsidies, theNorth Slope LNG plant could not evencome close to matching the pricing underthe (LNG Supply Agreement),” Figurawrote. The Fairbanks Natural Gas parentcompany Pentex Alaska Natural Gas Co.LLC unsuccessfully applied to be the pri-vate sector partner on the project.
The Regulatory Commission of Alaskais taking comments through Dec. 16.
New rates comingWhen Fairbanks Natural Gas became a
certificated utility in 1997, the RegulatoryCommission of Alaska required it to its filegas supply agreements for approval.
The commission subsequently exemptedFairbanks Natural Gas from economic reg-ulation in 2003. With the utility voluntarilyre-entering rate regulation, and currentlygoing through the ratemaking process, thestatus of that provision is now uncertain.
As part of its ratemaking process,Fairbanks Natural Gas wants regulators toinclude a gas cost adjustment mechanism inits tariff. The mechanism gives regulatedutilities some leeway to change rates inresponse to changes in the cost of gas sup-plies (as opposed to a complete ratemakingcase, which also considers operational costsand rate of return).
“In light of both the restarting of rate reg-ulation and the proposed (gas cost adjust-ment), it seems appropriate for (FairbanksNatural Gas) to begin filing new gas supplycontracts, effective June 30, 2014, whenFNG filed its rate case. This is the first newgas supply contract since that date,” Figurawrote in his recent filings with the commis-sion.
—ERIC LIDJI
More consultation orderedVeale quashed the revised land-use plan,
ordering more consultations with FirstNations and other affected communities.
The Na-Cho Nyak Dun and Tr’ondekHwech’in First Nations, the Yukon chapterof the Canadian Parks and WildernessSociety and the Yukon ConservationSociety launched a court challenge of thegovernment’s decision to modify sevenyears of research and consultation by acommission that called for most of thewatershed to be protected.
Chief Roberta Joseph of the Tr’ondekHwech’in said Veale’s decision ensures thewatershed will remain sacred “for ourgrandchildren.”
The First Nations’ lawyer, ThomasBerger, argued the land use changes hadundermined the planning process for thePeel.
“This is a remarkable judgment,” hesaid. “The land use planning process(signed by the Canadian and Yukon govern-ments and Yukon First Nations in 1993) has
been vindicated.”He said the “remarkable” judgment is a
“great victory for the First Nations, theenvironmental organizations and allYukoners. In the end, one of the world’s lastgreat wilderness areas will be protected.”
Berger, who served on the SupremeCourt of British Columbia for 11 years, hasgained special recognition for his commit-ment to ensuring that industrial develop-ment on aboriginal land yields benefits toindigenous people.
He is best known for his role in 1977 ascommissioner of an inquiry into the originalplans for a Mackenzie Valley natural gaspipeline when he dealt a crushing blow tothat project by suggesting a 10-year mora-torium until Native land claims could besettled.
Government reviewing rulingThe Yukon government said it needs
time to review Veale’s ruling before decid-ing how it will move forward once it assess-es the implications of the judgment on land-use planning and economic development.
“As we examine the court’s opinion andthe reasons given by the judge, we will con-tinue to work with First Nations, consulting
and engaging on any ongoing files, projectsand activities,” the government said.
The opposition New Democratic Partysaid the ruling underscored the govern-ment’s neglect of its responsibilities underthe final agreements of 1993.
NDP Leader Liz Hanson said it was timefor Premier Darrell Pasloski to “admit hewas wrong to impose unilateral changes tothe Peel land-use plan and respect the spiritand intent” of the final agreements.
She described the ruling as a “testamentto the importance of building, not sides-stepping, government-to-government rela-tionships. Instead of seeking leave to appealthis decision to the Supreme Court the pre-mier should seize this opportunity for rec-onciliation with First Nation governments.”
Government lawyer John Hunter arguedbefore Veale that the agreement on whichaboriginal land-claims settlements arebased is clear that the government can ulti-mately approve, reject or modify a final rec-ommended plan submitted by the PeelRiver watershed planning commission.
Drilling plans stalledSeparately, plans by Northern Cross
(Yukon) to drill and test up to 20 explorato-
ry wells over the next eight years on theYukon’s Eagle Plains area have been stalledby three First Nations who have gained anextension on the time they have been allo-cated to consider the company’s plans.
The project also involves building about50 miles of roads, starting with winterroads, then all-season roads if they aredeemed necessary.
The area is about 18 miles south of EaglePlains within the traditional territory of theVuntut Gwitchin and Na-Cho Nyak DunFirst Nations and the secondary use area ofthe Tetlit Gwich’in.
The Yukon Environmental and Socio-economic Assessment Board granted theextension, acknowledging the “complexityand size” of the project along with “con-cerns raised by elders that need to beaddressed.”
One resident, Don Roberts, told theboard that Northern Cross has not done itshomework, offering no recent baseline stud-ies on the impact of the project on water,permafrost, caribou migration, or any kindof animal life.
—GARY PARK
18 PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014
They don’t call it The Great Land for nothing. Everything is greater
here: the temperature drops, the storms, the winds, the ice, the
tidal changes. That’s why our Orca class vessels are specially built to
withstand the worst that nature can throw at us between Tacoma
and Anchorage.
Meeting the unique demands of Alaska is only part
of our business.
Meeting yours is everything else.
There’s cold. And there’s Alaska cold.
www.TotemOcean.com 800.426.0074
continued from page 1
COURT RULING
continued from page 1
SUPPLY CONTRACT
refinery in Nikiski, some 72 miles to thenorth along the Sterling Highway.BlueCrest would hire an outside truckingcompany.
The project would be powered withexisting Homer Electric Association Inc.power lines and a new Enstar Natural GasCo. distribution line. Should BlueCrestever decide to produce natural gas atCosmopolitan, it would likely reverse theproposed Enstar line.
The Alaska Department of NaturalResources is taking comments throughDec. 26.
Only oil for nowIn June 2014, BlueCrest presented a
two-pronged program for Cosmopolitan.The program would have targeted gas
accumulations using two new offshoreplatforms and oil accumulations usingextended reach drilling from existingonshore facilities.
BlueCrest also said that it had greatershort-term confidence in the oil develop-ment than about the gas development,which depended on “a suitable market forgas in the Cook Inlet basin, additionalinformation gained from drilling the firstoffshore delineation wells, and receipt ofall required governmental approvals fromthe offshore program.”
By September 2014, BlueCrest wasmoving ahead on oil development usingextended reach drilling. But the companyreiterated that it would need greater com-mercial assurances before it would com-mit as much as $500 million to as gasdevelopment.
The earlier proposal made no mentionof midstream considerations. The currentplan to truck Cosmopolitan oil to marketrevives a pilot project started by an earli-er operator.
Discovery in 1967ARCO Alaska began sniffing around
the Cosmopolitan prospect in the 1990s,interested in learning more about an off-shore oil discovery Pennzoil made in1967. Phillips Inc. continued the effortafter acquiring ARCO’s Alaska proper-ties, forming the Cosmopolitan unit in2001 and drilling the Hansen No. 1 wellfrom an onshore pad.
Through a merger, ConocoPhillipstook over the project in 2002. The com-pany drilled and tested the Hansen No.1A sidetrack in 2003. Pioneer NaturalResources Inc. came on as a minoritypartner in 2005 and helped fund a 3-Dseismic program over the leases.
After drilling the Hansen No. 1A-L1lateral sidetrack in 2007 and stimulatingthe well in 2010, Pioneer launched a pilotproject to truck Cosmopolitan oil to mar-ket. Over several months, Pioneer truckedsome 33,000 barrels of oil to the Tesoro
refinery in Nikiski.Eventually, Pioneer decided against
continuing the project and sold the leasesto the Australian independent BuccaneerEnergy Ltd., which partnered withBlueCrest.
Jack-up may be used in 2015The companies drilled the offshore
Cosmopolitan No. 1 well using theEndeavour jack-up drilling rig andintended to drill a second well to appraiseoil and gas discoveries.
Buccaneer ultimately sold its stake inthe project to BlueCrest. Under the termsof the deal, BlueCrest agreed to use theEndeavour jack-up rig at Cosmopolitanfor at least 50 working days each winterfor the three upcoming winters —through April 15, 2016.
That provision recently became mootwhen the Alaska Industrial Developmentand Export Authority sold its stake in thejack-up rig to its common owners on theproject.
AIDEA agreed to the sale after failingto secure a long-term charter for the rig inCook Inlet. Once the sale closes, the com-mon owners intend to take the rig toSouth Africa.
Earlier this year, BlueCrest began per-mitting the Cosmopolitan State B-1 andsaid it would drill the offshore well usingthe Endeavour jack-up rig or the similarSpartan 151 jack-up rig. At the time,BlueCrest said it might defer drillingplans to early 2015. l
PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014 19
Alaska’s Premier Motorola DealerProviding Alaskans with two way radio and wireless communications.
The future of two-way radio.
NORTH SLOPETELECOM, INC.
907.751.8200 | www.nstiak.com
MOTOTRBOTM PROFESSIONALDIGITAL TWO-WAYRADIO SYSTEM.
WE KNOW PIPES, INSIDE AND OUT.
fleetingly experienced in 2008 they will not stay that lowfor long “because you will see increased demand andsupply.” He said OPEC’s rejection of production cutsmeans “we’re going to really have to find ways to redo ourbusiness if we’re going to remain competitive in this low-price environment.
“In the short-term, what you’re going to see is projectsthat are already underway ... move to completion, but in thecurrent price environment ... you will see a real muting orreduction or deferment of future oil sands projects until youget more stability. And I think that may be what OPEC iswanting to achieve.”
More supply than demandHe said that “right now we have more supply than we
have demand. The market now is going to find a pricewhich best reflects what it costs to produce a barrel of oil... nothing solves low prices like low prices.”
Edwards also said he expects there will be a slowdownamong non-oil sands producers such as those in the UnitedStates and Canadian shale oil sectors.
However, he said Canadian Natural will continue withits four-month hiring freeze, but will not downsize“because loyalty and employees are very important.”
Edwards also urged the Alberta government to avoidchanging its regulatory framework by adding “unneces-sary red tape or burdens that would make us more cost
uncompetitive.”
Capital budget based on US$81In setting a capital budget of C$8.6 billion for 2015
based on oil averaging US$81 for West Texas Intermediate,Canadian Natural has listed C$2 billion of work as discre-tionary, although that will not affect work on key growthprojects such as expansion of the company’s Horizon oilsands mine, he said.
Despite a darkening mood within the Canadian industry,Edwards pointed to brighter long-term outlook by predict-ing that efforts to build new pipelines, such asTransCanada’s Keystone XL and Energy East, will contin-ue because they represents a 30- to 50-year opportunity.
Alberta looking at US$65-US$75Alberta Premier Jim Prentice told a business luncheon
that his government will base its spending for the rest of2014 on oil prices of US$65-US$75.
That came two days after Alberta Finance MinisterRobin Campbell said the province expects to post a C$933million budget surplus for 2014-15, although Prenticewarned there could be a period of belt tightening as he low-ered Alberta’s forecast oil price to US$65-US$75 for theremaining four months of the fiscal year from the earlier tar-get of US$75 which he said could translate in cut in oil roy-alties of C$1 billion to C$4 billion.
He said that even if Alberta ended the budget year witha deficit of C$4 billion his government will protect coreservices.
“We could lay off every single member of the civil serv-ice and it wouldn’t fix he deficit,” he said.
For Prentice the most important goal is to “get (Alberta)off the oil train. We have to get to a position where we’renot listening to OPEC to decide how many schools we’regoing to build.”
Economist questions other sourcesBut Robert Kavic, senior economist at the Bank of
Montreal, said Alberta will never find it easy to developnew sources of revenue.
“They’ve been talking about that as long as I can remem-ber,” he said. “It’s just the nature of the game. It’s an oil-driven economy.”
Patricia Mohr, a commodities analyst at Scotiabank, saidan analysis by her bank showed that oil plays in WesternCanada “are on average lower-cost than in the UnitedStates, partly due to royalty credits and a more flexible roy-alty system.”
“While several senior and integrated oil producers haveindicated little scaling back in their capital spending inten-tions, junior oil producers face a tougher funding environ-ment,” she said, suggesting that drilling activity in WesternCanada could drop by 15 percent in 2015.
Canada’s Finance Minister Joe Oliver was quick to raisea warning flag, suggesting that the loss of revenues from oilexports, which account for 15 percent of Canada’s trade,could mean planned tax cuts or new spending will beshelved. l
continued from page 1
JITTERY MOOD
24Hour
Machining Welding
OEM Equipment Production WeldingAccessories Certified Welding
Repair and Overhaul Fabrication
Serving Alaska’s Petroleum Industry for Over 35 Years
APIQR ISO9001:2008, reg. # 0717 • APIQR Spec Q1, reg. # Q1-0456
APIQR ISO/TS 29001, reg. # TS-0268
8875 King St., Anchorage | 907 563-3012 | [email protected] | www.umalaska.com
Threading
API 5CT, lic. # 5CT-1163 • API Spec 7-1, lic. # 7-1-0758 • Vallourec • VAM AB
Tenaris • Hunting • NS Connection Technology • NOV Grant Prideco • Vam USA
A SUMITOMO CORPORATION SUBSIDIARY
continued from page 1
COSMO OIL
its never-ending overreach,” and from thedevelopment of Arctic policies withoutthe involvement of Arctic residents.These issues come in the context of afoundation for the prosperity of the com-munities, set in the past by North Slopecommunity leaders, Rock said.
“All of this history provides a platformfor the subsistence lifestyle that nourishesour people and our culture,” he said. “TheArctic has always provided sustenance tothe Inupiat. It always has, it still does andit always will.”
Rock emphasized that regional corpo-rations, including ASRC, had supportedthe defeat of a referendum designed torepeal the recent change to the Alaska oilproduction tax. The debate around the oiltax issue had improved people’s under-standing of how the North SlopeBorough’s tax base, derived primarilyfrom the oil industry, had brought benefitssuch as improved health clinics;improved roads; improved water andsewer systems; and lower cost energy,Rock said.
A local voiceRock said that the North Slope commu-
nities have formed a nonprofit group calledthe Voice of the Arctic Inupiat, to providea unified voice for all North Slope Inupiatentities in confronting the Arctic ambitionsof environmental nongovernment organi-zations. These organizations oppose Arcticdevelopment and have been using Nativepeople as a face for raising money for aglobal campaign, he said. But those same
organizations, whose people do not live inthe Arctic, do not provide funding for trib-al entities — they will next target theNative subsistence lifestyle, he said.
“The problem we face is they haveinfiltrated our communities and worked todivide those communities for their goalsand fundraising agendas,” Rock said. “Ourregion has had enough and we’re fightingback.”
Greater Mooses ToothIn illustration of issues relating to the
federal government, Rock citedConocoPhillips’ Greater Mooses Toothdevelopment, an oilfield development inASRC-owned subsurface estate accessedfrom federal surface land in the NationalPetroleum Reserve-Alaska. Despite com-pleting an environmental impact statementin 2013, with a plan for the development,the Bureau of Land Management has pro-posed a permit with significant and costlyenvironmental mitigation measures thatmay cause the project to become uneco-nomic, Rock said.
Despite ASRC’s right to develop itslands, acquired from the federal govern-ment under the terms of the Alaska NativeClaims Settlement Act, BLM is using a
heavy-handed implementation of theNational Environmental Policy Act toimpair the Native corporation’s land rights,Rock said. It appears that as a consequenceof hypersensitivity to litigation by non-governmental organizations the govern-ment is over thinking everything, he said.
“We would like to remind the govern-ment that GMT-1 (Greater Mooses Tooth)means the development of Native-ownedresources, helping all Alaska Natives, andthat any mitigation should be proportion-ate to the development involved,” Rocksaid.
OCS developmentPotential offshore oil development on
the federal outer continental shelf of ArcticAlaska also provides an example of feder-al over thinking, Rock said. The Nativecommunities have in the past opposedouter continental shelf development,because, while such development posesrisks for offshore subsistence hunting, thecommunities have not seen themselves asgaining any compensating benefit —Alaska does not have a revenue sharingarrangement for the federal taxes and roy-alties that would arise from outer continen-tal shelf oil development.
After the federal government issuedouter continental shelf leases, despiteNative objections, the communities cameto a realization that they needed to alignwith the development, to impart an influ-ence on what was happening and possiblygain some benefit from what was beingdone.
“To say ‘no’ was no longer a viableoption and was not going to change any-thing,” Rock said.
In the summer of 2014 ASRC and sixvillage corporations formed an organiza-tion called Arctic Inupiat Offshore, to part-ner with Shell in the exploration and devel-opment of the company’s Chukchi Sealeases. By sharing risks and benefits withShell, ASRC and the village corporationswill have “skin in the game,” Rock said.
“I strongly believe this was the rightthing to do,” he said. “If Shell is successfulwe will have addressed all our shareholderdividend needs well into the future, justlike our past leaders have done for my gen-eration.”
Arctic forumsIn the context of the Native people hav-
ing a voice at the Arctic table, Rock com-mented on the plethora of Arctic forumsthat are “popping up almost daily.” Andthe U.S. government is engaged in Arcticpolicy building at every department level.
“It seems that everybody is on theArctic policy bandwagon,” Rock said.
But, as receding summer sea iceencourages more vessel traffic into theArctic Ocean and more interest in Arcticresource development, why are the Arcticpolicy conversations not taking place nearthe communities in the Arctic, he asked.While the North Slope communities havebeen trying to keep abreast of what is hap-pening, traveling to various meetings atconsiderable cost, they question why theyneed to travel around the world to talkabout their own home.
With the United States taking over in2015 the chairmanship of the ArcticCouncil, an international, intergovernmen-tal forum, ASRC will need to be diligent inmonitoring the development of new Arcticpolicies, the decision making of workinggroups and the issuing of guidelines. And,having formed the Voice of the ArcticInupiat, the North Slope communities willhave an entity for addressing policy issuesfrom a local North Slope perspective,Rock said. l
20 PETROLEUM NEWS • WEEK OF DECEMBER 7, 2014
www.lynden.com 1-888-596-3361
At Lynden, we understand that plans change but deadlines don’t. That’s why we proudly offer our exclusive
Dynamic Routing system. Designed to work around your unique requirements, Dynamic Routing allows you
to choose the mode of transportation — air, sea or land — to control the speed of your deliveries so they
arrive just as they are needed. With Lynden, you only pay for the speed you need!
Only pay for the speed you need... Dynamic Routing!SM
continued from page 1
BIG CHALLENGESBut, as receding summer sea ice
encourages more vessel traffic intothe Arctic Ocean and moreinterest in Arctic resource
development, why are the Arcticpolicy conversations not taking
place near the communities in theArctic, he asked. While the North
Slope communities have beentrying to keep abreast of what ishappening, traveling to various
meetings at considerable cost, theyquestion why they need to travelaround the world to talk about
their own home.