Q&A: Pruitt says oil tax changesgo too far, unhappy with leverage

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

l N A T U R A L G A S

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Vol. 22, No. 16 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of April 16, 2017 • $2.50

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www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of April 16, 2017

Barrick moves into Yukon; optionsCarlin-type gold project from Atac

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From 2004 through 2011, Novagold Resources completed roughly 13,500 meters of drilling at the Arctic depositin the Ambler mining district, including this hole drilled in 2007. In 2012, Novagold formed Trilogy Metals (thenNovaCopper) to continue the exploration and development of this high-grade volcanogenic massive sulfide proj-ect in Northwest Alaska.

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

NEWS NUGGETSCompiled by Shane Lasley

Constantine, Dowa to test new high-grade prospects at Palmer

Constantine Metal Resources Ltd. April 12 announced plansfor 7,000 meters of drilling this year at the Palmer project,Alaska in Southeast Alaska. This will mark the first programunder the newly formed joint venture between Constantine (51percent) and Dowa Metals & Mining Alaska Ltd (49 percent).The partners have developed a new multi-year plan forPalmer that includes exploration for new resources across thedistrict-scale property, as well as expanding and upgrading thecurrent inferred copper-zinc polymetallic resource of 8.1 mil-lion metric tons grading 12.6 percent zinc-equivalent. The jointventure has budgeted US$7 million for this year’s program, themajority of which will be invested in exploration drilling acrossthe wider property. Palmer is host to numerous high-qualityprospects with large hydrothermal alteration zones and high-grade base and precious metal mineralization exposed at sur-face – most of which have never been drilled. Property-wideairborne geophysical surveying, geological mapping andprospecting work are also included in the summer explorationplans. “This is the first drill program of any real size to testproperty-wide targets and will also be the first airborne electro-magnetic survey to be flown over the entire property.Meanwhile, we continue to systematically advance the explo-ration and assessment of the high-grade RW and South Wallzones,” said Constantine President and CEO GarfieldMacVeigh. The work at the resource area – RW and South Wallzones – is expected to include drilling, road construction, engi-neering and environmental studies, and evaluation of a potentialexploration drift for the purpose of continued expansion anddrill definition on the deeper portion of the existing resource.Program start-up is scheduled for early June.

DNR adds financial, reclamationrequirements to Pebble permit

Alaska Department of Natural Resources April 11announced significant new requirements in a land-use permitauthorizing the Pebble Limited Partnership to continue care,maintenance and reclamation on its mining claims in the BristolBay region. The regulatory agency said this decision followsthe review of more than 2,000 public comments and an exhaus-tive analysis. During the comment period on Pebble’s applica-tion for the permit, questions arose on the condition of certaindrill holes and whether hundreds of these holes drilled duringactive exploration would be properly reclaimed. After review-ing these concerns, DNR decided to include a financial assur-ances requirement of US$2 million to the permit it issued.While financial assurance typically is not required for explo-ration projects in Alaska, more than 1,300 holes have beendrilled at Pebble and additional work is anticipated as the proj-ect moves towards permitting and development. The agency isalso requiring inspection, reclamation and closure of 138 drillholes during the 2017 field season. Not all holes would beclosed during the permit term – roughly half of them would bemaintained for data collection and monitoring. “We have care-fully considered and applied new stipulations to this permit thatare reasonable, comply with our legal requirements, andaddress concerns we heard in the comment period,” saidNatural Resources Commissioner Andy Mack. “We fully rec-ognize that Pebble is a unique project, in terms of its size, loca-tion and amount of public interest. Our goal in issuing this per-mit is to ensure that state lands receive good stewardship, andthat the Pebble Partnership is authorized to do necessary workon its claims.” While many of the commenters said the PebblePartnership had left a mess on the property, DNR said its owninspections “found the structure and materials to be well main-

South32 looks northBHP Billiton spin-off joins Trilogy, NANA at Upper Kobuk Mineral Projects

By SHANE LASLEYMining News

South32 Ltd., a coal and base metals miner spunout of BHP Billiton in 2015, has cut a US$150

million deal with Trilogy Metals Inc. to earn up to a50 percent interest in the Upper Kobuk MineralProjects, UKMP, a large land package that blanketsmost of the Ambler Mining District in NorthwestAlaska.

South32, which up to this point was focused onthe Southern Hemisphere, has eight mines inAustralia, Africa and South America that producealuminum, coal, manganese, nickel and silver.

“This will be their first venture north of the 67thParallel, in Alaska,” Trilogy Metals President andCEO Rick Van Nieuwenhuyse said during an April10 conference on the agreement.

Under this agreement, South32 has the option toearn a 50 percent stake in UKMP any time over thenext three years by investing up to US$150 million,which is about US$50 million more than Trilogy hasin the project so far. To keep this option in goodstanding, South32 must invest at least US$10 millioninto UKMP annually over the next three years.

"We believe this deal recognizes the quality ofour assets,” said Van Nieuwenhuyse. “By offering tofund at a 150 percent premium to the investmentmade by Trilogy, the terms recognize the high-qual-ity asset base that Trilogy has assembled at theUKMP. In terms of the option, South32 will investup to US$30 million to explore, expand and advancethe already sizeable metal endowment identified todate.”

Additionally, the Perth, Australia-based miner hasagreed to reimburse Trilogy up to US$5 million peryear over the next three years as the explorationcompany continues to carry out its plans in the dis-trict.

This means that the Ambler mining district willbe a busy place this summer.

Trilogy still plans to continue a US$7.1 millionprogram aimed at finalizing a pre-feasibility study

for Arctic, a volcanogenic massive sulfide depositthat hosts some 1.65 billion pounds of copper, 2.62billion lb of zinc, 444 million lb of lead, 610,000ounces of gold and 45.3 million oz of silver in theinferred and indicated resource categories.

South32, in the meantime will be making its firstUS$10 million investment in the expansion ofBornite, a high-grade carbonate hosted deposit about16 miles south of Arctic that hosts another roughly6.4 billion lb of copper.

Trilogy will manage the work at both Arctic andBornite.

NANA welcomes new partnerUKMP is a district-scale project that includes a

block of state mining claims held by Trilogy thatstretches 70 miles (110 kilometers) across theAmbler district and an adjacent land package ownedby NANA, the Alaska Native Regional Corporationthat represents the Inupiat people of NorthwestAlaska.

Arctic, along with more than a dozen other VMSdeposits and prospects rich in copper, zinc, lead,gold and silver are found on the Trilogy claims.Bornite and other copper-rich prospects are locatedon the NANA lands.

A 2011 agreement brought these two high-gradeAmbler district properties together into what is nowknown as UKMP.

NANA, which has an option to be a 16 to 25 per-cent equity partner in the project or receive 15 per-cent net proceeds royalty from any mines developedon the 353,000-acre land package, sees the new part-ner with ample funds and mining knowhow as a pos-itive step for UKMP.

“NANA looks forward to partnering with Trilogyand South32 on this new phase of exploration,” saidNANA President and CEO Wayne Westlake. “Ourregion has benefited from responsible resourcedevelopment, and we value working with companiesthat advance our land’s mineral potential and createshareholder value while respecting our traditional

see NEWS NUGGETS page 8

see SOUTH32 page 9

This week’s Mining News

BHP Billiton spin-off joins Trilogy, NANA at Upper Kobuk Mineralprojects. Read more in North of 60 Mining News, page 7.

page3

BP reports 2016 Alaska profit;$464 million in taxes, royalties

The BP Group, in its 2016 annual report and Securities and

Exchange Commission filing, has reported a profit of $85 mil-

lion from its Alaska operations last year. That compares with

a loss of $172 million in the state in 2015. Operating costs in

the state in 2016 were $1.2 billion.

The report says that BP paid $102 million in production

taxes but the report does not break out the data for state roy-

alties or provide information about the company’s capital

investments in Alaska. A company spokesperson has told

Petroleum News that in 2016 in Alaska BP paid a total of $464

million in production taxes and other state taxes, and in royal-

ties. The company made capital investments amounting to

$600 million in Alaska in 2016, the spokesperson said.

Senate delegation files OCS billU.S. Senators Lisa Murkowski and Dan Sullivan have intro-

duced legislation to roll back offshore drilling restrictions made

in the final weeks of the Obama Administration.

The Offshore Production and Energizing National Security

Alaska Act of 2017, or OPENS Alaska Act, would repeal with-

drawals from the outer continental shelf in Alaska and the

Atlantic Ocean and allow for future lease sales in the Arctic OCS.

The bill also includes provisions for sharing revenues with the

state of Alaska.

Although the two senators believe that the Trump

Administration could revoke the Obama-era decisions using its

executive authority, they filed the bill “to set a marker that reflects

the views of the vast majority of Alaskans,” according to an April

7 statement.

Between the November 2016 election and the January 2017

see BP ALASKA PROFIT page 15

see OCS BILL page 15

Repairs in progressDivers locate gash in Cook Inlet gas pipeline and are repairing the line

By ALAN BAILEYPetroleum News

Divers have begun work to repair a leaking

subsea gas fuel line at the Middle Ground

Shoal oil field in Cook Inlet, field operator Hilcorp

Alaska said April 10. Hilcorp discovered the leak

in early February and in late March had to shut

down the field until the leak is repaired. The com-

pany had to wait for sea ice conditions in the inlet

to improve before it could safely send down divers

to do the repair work.

Diving conditions in the inlet are notoriously

difficult because of strong tidal currents and the

turbidity of the water.

Hilcorp said that divers have now found the

leak point, a 2-inch gash where the pipeline is rest-

ing on a boulder embedded in the seafloor. The

divers are now preparing for the installation of a

temporary clamp over the hole, Hilcorp said.

Following this initial repair, further inspection

work will be conducted and a permanent repair of

the pipeline will be completed, Hilcorp said. The

company said that it will not return the line to serv-

House moves HB 111Bill eliminates cashable credits, ties carry-forward losses to lease or property

By KRISTEN NELSONPetroleum News

AFinance Committee substitute for House Bill

111, an oil tax and credit rewrite, passed the

Alaska House by a 21-19 vote April 10 after passing

out of House Finance on a 6-5 vote. The bill is now

in the Senate, where it will be heard by Resources and

Finance. No Senate hearings had yet been scheduled

when Petroleum News went to press.

In related action, the House on April 12 passed 22-

18 a Finance Committee substitute for Senate Bill 26,

creating a sustainable draw from the earnings of the

Alaska Permanent Fund, but the Finance CS tied the

bill to a condition requiring passage in this session of

the Legislature of a broad-based tax which would

generate annually at least $650 million directed to

education and “the version of House Bill 111 that

passes out of the House of Representatives.”

Out of business of cash creditsThe Finance CS for HB 111 gets the state out of

the business of issuing transferrable or cashable tax

credit certificates, replacing those credits with carry-

forward losses applicable to production taxes.

In discussions with the committee Ken Alper,

director of the Department of Revenue’s Tax

Division, said that in addition to getting the state out

of the business of cash credits, the per-barrel credit

also goes away, replaced with a lower tax rate (25

Big promises, big problemsCollapse of British Columbia’s LNG dreams threaten Premier Clark’s government

By GARY PARKFor Petroleum News

Early polling results point to a tight

contest in the British Columbia elec-

tion on May 9, with the socialist New

Democratic Party about three percentage

points ahead of Premier Christy Clark’s

governing Liberal Party.

Just as disturbing for Clark are signs

that the Green Party and Conservative

Party are both in strong double figures, raising the

prospect that a coalition might be needed to form a

government.

There is no clear reason why the Liberals are

floundering, but one of the most frequently quoted

explanations is that voters have grown tired

of Clark’s continued over-selling of the job-

and revenue-creating possibilities for LNG

exports.

No matter what promises she holds out,

nothing comes close to her boasting in the

2013 election campaign that British

Columbia would have four major LNG

projects up and running by 2020, generat-

ing 100,000 construction and permanent

jobs, and would start delivering cash by the

truckload to build C$100 billion Prosperity Fund by

2035.

Instead, while the major international players

have scrapped, shelved or slowed work on the 20

see PIPELINE REPAIR page 14

see HB 111 page 16

see BC ELECTION page 14

“We do have our standards for pipelinesthat are the same if it’s a new pipeline or

an old pipeline, and I can say thatHilcorp has been in compliance with our

standards for their infrastructure.”—Kristin Ryan, Alaska Department of

Environmental Conservation

CHRISTY CLARK

2 PETROLEUM NEWS • WEEK OF APRIL 16, 2017

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

EXPLORATION & PRODUCTION

FINANCE & ECONOMY

2 Eni revises C-plan for Nikaitchuq

4 Icewine well set for late April spud

5 State recessions come and go

6 Fuel costs have small migration impact

11 Coast Guard issues polar icebreaker RFI

13 AOGCC confirms Cook Inlet Energy fine

15 US drilling rig count increases 15 to 839

Repairs in progressDivers locate gash in Cook Inlet gas pipeline; begin repair

House moves HB 111Eliminates cashable credits, changes carry-forward losses

Big promises, big problemsCollapse of BC’s LNG dreams threaten Premier Clark’s government

ON THE COVER

BP reports 2016 Alaska profit$464 million in taxes, royaltiesSenate delegation files OCS bill

PIPELINES & DOWNSTREAM

NATURAL GAS

GOVERNMENT

4 US production could hit 9.9 million bpd

EIA April Short-Term Energy Outlook forecasts WTI crude oil prices will average $2 per barrel less than Brent prices in 2017-18

3 Pruitt: Oil tax changes going too far

Anchorage Republican critical not just of House Bill 111,but of how it’s being used as leverage to pass another budget gap bill

11 Donlin Gold plans Cook Inlet gas line

Pipeline for fuel to planned gold mine would boostdemand for Cook Inlet gas but development is still several years in the future

12 Milne Point asks for pipeline changes

Planned suspension of Oliktok Pipeline changes supplyissues at Milne Point, which now plans to use local natural gas supplies

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Eni revises C-plan for NikaitchuqCompany provides standards for response planning for both summer, winter activity at proposed Nikaitchuq North exploration project

By ERIC LIDJIFor Petroleum News

Eni US Operating Co Inc. has amended its oil spill

contingency plan to accommodate a planned off-

shore exploration program in the waters north of its

Nikaitchuq unit.

The Alaska Department of Environmental

Conservation is taking comments on the plan through

May 8 and will hold a public hearing on the matter if

“good cause exists.”

The revision to the Oil Discharge Prevention and

Contingency Plan for the Nikaitchuq unit makes changes

to the response planning standard for a potential spill at

the Nikaitchuq North project. The revision estimates a

maximum flow rate of 12,967 to 25,957 barrels per day,

or 236,842 barrels total, for winter drilling, and a maxi-

mum flow rate of 2,827 to 3,634 barrels per day, or

46,190 barrels total, for summer drilling.

The planning standard uses information from a pro-

posed project to determine the equipment and personnel

that would be needed to respond to a hypothetical spill.

The rates are calculated using “reservoir and well char-

acteristics” and would be amended if the actual drilling

produces flow rates that differ notably from the estimates

volumes.

Revision for explorationThe existing plan only included development activi-

ties, which have been the only source of drilling activi-

ties at Nikaitchuq since Eni brought the unit into produc-

tion in 2011.

Under the revised plan, Eni estimates a zero percent

chance of the planning volume reaching open water dur-

ing a winter spill. In a summer spill, Eni estimates that

80 percent of the oil would land on the Spy Island Drill

Site and some would then migrate to open water.

In early March, the local subsidiary of the Italian

major submitted a proposed exploration plan to the U.S.

Bureau of Ocean Energy Management, which has yet to

release the plan.

The Nikaitchuq North plan is expected to involve

some of the 29 federal leases the company holds in the

Arctic outer continental shelf, north of the Nikaitchuq

unit.

Eni holds a 40 percent interest in the leases, with

Shell holding 40 percent and Repsol holding 20 percent.

The leases are set to expire in July 2017 and December

2017.

Nikaitchuq North would likely involve extended-

reach wells drilled from the existing Spy Island Drill

Site, which the company has been using to target the

outer reaches of the unit. The program could require

some of the longest extended-reach wells ever drilled. l

PETROLEUM NEWS • WEEK OF APRIL 16, 2017 3

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By STEVE QUINNFor Petroleum News

House Finance Committee member Lance Pruitt has

not held back his displeasure for HB111, the

House’s oil tax rewrite he says not only goes too far but

isn’t even within a reasonable range for the Senate to

consider. The Anchorage Republican became even more

incensed at the prospects of HB111 be listed as a condi-

tion — as is — to passing SB26, a Permanent Fund

restructuring bill.

Pruitt shared his thoughts on the oil tax debate with

Petroleum News, one day after it

narrowly passed the House, 21-19.

Petroleum News: Let’s startwith a broad view of HB 111. Whattroubles you about HB 111 rightnow?

Pruitt: What troubles me now is

we truly are now increasing taxes.

This is ACES at low prices. That’s

one of my biggest concerns with

this: When prices are down, when

industry is struggling, we are going to raise taxes. It’s

not that we are going to raise taxes on industry, it’s that

industry will have to make changes themselves and that

many times means they have to lay people off, jobs are

lost and the effect that it has on my constituents, on the

economy, is profound. There is just not a reason to do

that. We should get our own house in order instead of

going and saying we want to look at you so that you can

then look at our constituents.

Petroleum News: Haven’t you got your own house inorder these last two or three years?

Pruitt: We’ve done some cuts and there is definitely

more that can be done. I’m of the measured approach. I

don’t think there is another $1 billion there to be cut in

any way shape or form. I think we can still manage

some things to bring it down. Separate from that, it’s

time to have an appropriate discussion about the earn-

ings reserve. I think most of the building recognizes

that.

Instead of first going to the same industry every sin-

gle time and creating instability there, it’s time for us to

figure out why do we keep going there, what things can

we do to put in place for diversification of our own rev-

enue streams as well as encourage diversification of our

own economy in general. Are we encouraging mining

projects for example? That’s why I’m such a proponent

with AIDEA going through what they need to do with

the Ambler Road. That’s what AIDEA is for. They are

the investment bankers. Sometimes we jump in the way

and get involved with that. That’s part of the diversifica-

tion that just has to take place right now.

Petroleum News: You talk about why we keep goingback to the industry. Some feel that ACES went too far oneway and then SB 21 went too far the other way, so

depending on what side of the argument you’re on thereseems to be a belief that the Legislature just can’t get itright.

Pruitt: SB 21 didn’t have the cashable credit discussion.

That came during PPT and ACES. I think if we could go

back and look at SB 21, we could fault ourselves for not

taking a deeper dive into the cashables. That’s the one

thing the Legislature could agree on: that this time we

can’t afford to put those cashables out. So

that is a little bit of bringing it back to parity.

The challenge is with this bill, they are not

trying to pull back on the cashables discus-

sion. They are saying we are going to reform

the tax structure itself. Some of the thoughts

in the change in structure, they are not small

tweaks. The ring-fencing for example — that is a monu-

mental change.

Petroleum News: What about hardening the floor?Even the Senate had a working group that posted a reportrecommended it, but then they walked back on that.

Pruitt: The question is do we pay for it now or do we

pay for it later. If we are going to operate this system that

includes, as it should, the net operating loss, the question

is do we pay for it now or do we pay for it later?

If we harden the floor the challenge there is the ramifi-

cations on a return on investment for a company when

they are looking to invest. If they turn around and say the

value of that money will be eroded because we can’t use it

against the net operating losses sooner rather than later,

then that return scales down. So it’s really a policy ques-

tion of well you can do it but maybe later and the value of

it will be eroded. We are going to have to pay for that at

some point. I remember Ken Alper in a separate conversa-

tion last year, saying we can pay them out now or we can

take a zero interest loan and pay them later. That’s the

other kind of attitude and it’s not taking concern about the

impact to industry. It’s taking into account our bottom line.

That’s a big concern. We’ve got to balance ours with con-

cerns for the industry.

Petroleum News: Did you see any compromise in HB111?

Pruitt: The problem is that it’s just so bad. I think what

they were trying to with the NOLs as it related to the cash-

ables is a worthy effort. I think George Rauscher’s amend-

ment is an example of meeting both sides concerns. That’s

what I would like to see. It takes a little of the Resources

Committee’s version. So there might be some there, but

there has to be an opportunity for everyone to have a dis-

cussion on this particular issue. I don’t think that’s neces-

sarily taken place at different levels.

Petroleum News: As disappointed as you are, this stillgoes to the Senate, so you’re a long way from any kind offinal product. Are you at all heartened by that?

Pruitt: I’m heartened by the fact that the Senate is out

there and there is that second body. Here’s the concern. If

you already know that you are so far in one direction that

the other body is not going to come anywhere close to it.

I’ll pull back to another issue I’ve been harping all this

year. When I was knocking on doors, I heard three things:

budget, public safety, get your job done on time.

So that’s the other piece that is concerning. You are

right. We are a long ways away, but yet the people are

very frustrated that we continue to blow past the 90 days

as if it doesn’t exist. We go into multiple special sessions.

They are really, really tired of that. Recognizing that, what

I would have liked to have seen is, that can

we get closer to something, so that in the

end the Senate might be able to get a hold

of it and be more receptive to it. Instead

we are so far apart that it’s going to take a

long time to get to a conclusion. It seems

like to some people, that’s not an issue.

Petroleum News: Now the governor, by his own admis-sion, has remained in the background of these debates. Doyou feel like you’re getting enough administration engage-ment?

Alper: Here’s what happens. My friend Ken (Alper)

will come up and give his perspective and he’s speaking

for the governor. Then when we ask if he’s speaking for

the governor and there is a separation there. Then we

heard from Commissioner Hoffbeck on SB 26, and he

said the governor is not going to make any comments on

it. You’re talking about one of the three legs on the stool. I

reference a Doris Kearns book the Bully Pulpit that I have

up there (in bookcase).

When you are the governor, you do have a bully pulpit.

Some people use it in a way that I would disagree with

using it because they might perpetuate things I disagree

with. When it comes to the oil and gas industry, he needs

to make it very clear now where he stands with this. I’m

hearing one thing from his people when they are at the

table that is very concerning to me. Then again, I’ll hear

other people who may be a part of industry who said,

‘well, he said this.’

He needs to make it very clear. He needs to send a true

message. Should they expect a dramatic shift and allow

them to say this is the impact of what the shift will be? I

think there is a little bit of worry right now because they

don’t know what’s going to come out. Is he going to say

we should narrow it down to X? That would help drive

the conversation. While I’m OK with him stay out and let

the legislative process work, because of what we are talk-

ing about and where we are in the timeframe, I think it

would benefit everyone if he said this is on the table and

this is off the table. That’s been a little frustration. It’s time

for him to say ‘guys, get it back to more of this area, this

is what I would be more comfortable with.’ If it’s off to

the other side, it gives the industry to come and say some-

thing.

Petroleum News: During the HB 111 hearings, youwere saying you didn’t think it was appropriate to com-pare Alaska to other countries or compare Alaska toplaces like Texas or North Dakota, but that was done anawful lot during SB 21 debates. So if you don’t compare

l G O V E R N M E N T

Pruitt: Oil tax changes going too farAnchorage Republican critical not just of House Bill 111, but of how it’s being used as leverage to pass another budget gap bill

REP. LANCE PRUITT

see PRUITT Q&A page 13

By KRISTEN NELSONPetroleum News

U.S. crude oil production is forecast

to average 9.9 million barrels per

day in 2018, a new record, the U.S.

Energy Information Administration said

April 11 in its Short-Term Energy

Outlook.

“U.S. crude oil production is expected

to be higher during the next two years

than previously forecast, with annual

output in 2018 now forecast to reach 9.9

million barrels per day, exceeding the

previous record level of 9.6 million bar-

rels per day reached in 1970,” EIA acting

Administrator Howard Gruenspecht said

in a statement.

EIA said estimated average produc-

tion was 8.9 million bpd in 2016 and is

forecast to average 9.2 million bpd this

year. The 2018 forecast of 9.9 million

bpd is 200,000 bpd higher than the

agency’s previous forecast, and “reflects

improvements to the rig methodology

that captures increased cash flow as pro-

duction increases,” EIA said.

Rig methodology changes have the

largest effect on Permian and Niobrara

production, while continued develop-

ment in the federal offshore Gulf of

Mexico at the Thunder Horse South

Expansion and Gunflint, which began in

2016, contributes to higher forecast pro-

duction from the federal offshore.

Crude pricesNorth Sea Brent crude oil spot prices

averaged $52 per barrel in March, EIA

said, $3 below the February average, and

are forecast to average $54 this year and

$57 per barrel in 2018, with West Texas

Intermediate crude oil prices forecast to

average $2 per barrel less than Brent this

year and next.

EIA has previously forecast WTI

prices to average $1 per barrel less than

Brent prices. The agency said the $2 dis-

count of WTI to Brent “is based on the

assumption that the marginal market sup-

plied by both crude oils has moved from

the U.S. Gulf Coast to Asia.”

Crude oil traded in a narrow range for

three months and then declined in March,

EIA said, as “U.S. crude oil inventories

built to a multi-decade high and as U.S.

crude oil production rose.” The price

decline was despite cuts in production by

the Organization of the Petroleum

Exporting Countries and some non-

OPEC producers. (The OPEC agreement

to cut crude oil production is for six

months and was effective Jan. 1.) EIA

said that pending an official announce-

ment on an extension, it is assuming that

OPEC production “will approach pre-

agreement levels during the second half

of 2017.”

The agency expects world crude oil

and liquid fuels supply to grow by 1.1

million bpd this year and by 1.9 million

bpd in 2018, an increase of 100,000 and

200,000 bpd respectively from the previ-

ous forecast because of higher expected

U.S. and Brazilian production growth.

EIA said world liquid fuels consump-

tion growth is mostly unchanged and that

it “expects the market to be relatively

balanced in 2017.”

“Reductions in international crude oil

supply and rising U.S. crude oil produc-

tion have put upward price pressure on

the price premium of Brent crude oil to

WTI crude oil in recent months,” the

agency said.

The growth in U.S. production has

lowered U.S. crude prices relative to

international crude oil prices, and as a

result more U.S. crude is being exported

to balance the domestic light sweet crude

oil market, EIA said.

The agency cited recent onshore-

focused oil capital expenditures by 44

companies in the U.S., up 72 percent,

$4.9 billion between the fourth quarter of

2015 and the fourth quarter of 2016, as

supporting its expectations of higher

U.S. production.

Natural gasEIA said the front-month natural gas

futures contract for Henry Hub delivery

settled at $3.33 per million British ther-

mal units on April 6, up 53 cents per mil-

lion Btu from March 1. The agency said

a brief cold period in mid-March con-

tributed to the increase in prices for the

month.

The Henry Hub spot price averaged

$2.88 per million Btu in March, more

than $1 above the average of $1.73 per

million Btu in March 2016.

The winters of 2015-16 and 2016-17

were both unseasonably warm, “but nat-

ural gas drawdowns were higher this sea-

son because of lower natural gas produc-

tion and higher exports,” the agency said,

adding that it expects exports to increase

more than production, narrowing inven-

tory levels to the five-year average which

is reflected in the forecast for rising nat-

ural gas prices, expected to average

$3.10 per million Btu this year and rise to

$3.45 in 2018.

U.S. dry natural gas production is

forecast to average 73.1 billion cubic feet

per day this year, up 0.8 bcf from the

2016 level. “This increase reverses a

2016 production decline, which was the

first annual decline since 2005,” EIA

said. The agency is forecasting natural

gas production to be 4 bcf per day above

the 2017 level in 2018. l

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

US production could hit 9.9 million bpdEIA April Short-Term Energy Outlook forecasts WTI crude oil prices will average $2 per barrel less than Brent prices in 2017-18

4 PETROLEUM NEWS • WEEK OF APRIL 16, 2017

Kay Cashman PUBLISHER & EXECUTIVE EDITOR

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Mapmakers Alaska CARTOGRAPHY

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Crude oil traded in a narrowrange for three months and thendeclined in March, EIA said, as

“U.S. crude oil inventories built toa multi-decade high and as U.S.

crude oil production rose.”

EXPLORATION & PRODUCTIONIcewine well set for late April spud

Accumulate Energy Alaska Inc. expects to begin drilling the Icewine No. 2

well by the end of April, according to information from its parent company 88

Energy Ltd.

The Alaska Oil and Gas Conservation Commission issued a final drilling per-

mit for the well on April 5. Additionally, according to the local subsidiary of the

Australian independent, the wellhead was delivered to Kenai, where testing was

underway.

The company expects to spud during the week of April 24.

The company plans to drill the Icewine No. 2 well from the Franklin Bluffs pad

using the Arctic Fox rig. The well is testing both convention and unconventional

targets, and the company is planning to stimulate and flow test the HRZ shale for-

mation in June or July.

—ERIC LIDJI

PETROLEUM NEWS • WEEK OF APRIL 16, 2017 5

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

State recessions come and goA review of state-level recessions since 1961 in shows the impact of structural changes on less diverse economies such as Alaska’s

By ERIC LIDJIFor Petroleum News

State recessions generally start with a shock but end

rather quickly, according to a review by economists

from the Alaska Department of Labor and Workforce

Development.

“When a state isn’t growing, that’s almost always

attributable to a specific economic weakness or shock. …

What lifts a state out of a recession, however, is seldom a

specific event or development. … Rather, economies typ-

ically absorb the precipitating shock over a period of time

and then resume growing,” economist Dan Robinson

wrote in an article in the April 2017 edition of the state sta-

tistical magazine Alaska Economic Trends.

Of the 259 state-level recessions since 1961 — defined

as nine consecutive months of job losses — 75 percent

saw job losses end within two years and nearly 25 percent

saw job losses end within two to four years. While both

categories seem small, the difference between them is

stark. The current recession in Alaska has been underway

for about 18 months, which means job losses would end

later this year under one case but not until late 2019 in

another. And about 0.4 percent of all state recessions take

four to six years to end, which would put the end of the

current Alaska downturn sometime in late 2021.

Start with a bangThe worst state recessions, according to Robinson, typ-

ically represent structural changes to a state economy,

such as the huge decline in Oregon timber production in

the early 1980s or the even larger decline in auto manufac-

turing in Michigan during the 2000s.

As those extreme examples suggest, state recessions

generally begin with a shock.

The current recession in Alaska can be traced to declin-

ing oil prices, while a recession in Washington in the early

2000s was related to the dot-com bubble and recessions in

Arizona, Florida and Nevada between 2007 and 2009

were related to housing markets.

While state-level recessions usually start with a shock

to major economic drivers, they end more gradually, as

state economies learn to absorb changes, according to

Robinson.

The idea that the $2 billion cleanup associated with the

Exxon Valdez oil spill in 1989 pulled Alaska out of its first

recession in the 1980s is “a myth,” according to Robinson.

He notes that employment was growing by 2 to 3 per-

cent in Alaska in the summer of 1988 and by “a robust”

4.1 percent in the month before the spill occurred in

March 1989.

Spending associated with the cleanup certainly stimu-

lated the economy, pushing job growth as high as 8 per-

cent for a brief period, he noted. But by 1990, job growth

in Alaska had returned to pre-spill levels. “It’s important

to understand that the spill didn’t pull the state out of its

recession because believing something big needs to hap-

pen to spur an economic recovery can be counterproduc-

tive if it shifts focus from the basic tasks that serve an

economy well over the long term, including public safety;

well-maintained roads, airports, docks, and other infra-

structure; good schools, and other strong public institu-

tions that make a state a place where people want to live,”

Robinson added.

The road aheadGiven the examples of these other state recessions

since 1961, “the next logical question might be whether

Alaska is in the midst of a structural change or simply

absorbing the shock from a temporary downturn in oil

prices and related activity,” Robinson asked.

Robinson is cautiously optimistic about the oil indus-

try. With global oil demand expected to rise over the next

25 years, and North Slope operators having recently

announced large oil discoveries, “Alaska’s oil industry

doesn’t appear to be on the same path as Oregon’s timber

industry in the 1980s or Michigan’s manufacturing

industry in the 2000s.”

But while many states depend heavily on a single

industry, no state relies as heavily on natural resources

and mining as Alaska. Some 30 percent of the state gross

domestic product came from the sector in 2014, a year

when oil prices were lower than usual.

By comparison, the sector contributed 24 percent of

GDP in North Dakota and 29 percent of GDP in

Wyoming in 2014, and only 9 percent in Louisiana and

15 percent in Texas.

As such, the Alaska oil industry impacts the state

economy in two ways — directly through jobs and indi-

rectly through revenues. While industry might not be in

“All other things being equal — and of course,they never are — that means our current

recession could linger for a while.” —economist Dan Robinson

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see RECESSION REVIEW page 6

By ALAN BAILEYPetroleum News

The University of Alaska Anchorage

Institute of Social and Economic

Research has published the results of a

study into the extent to which high fuel

costs in rural Alaska motivate rural resi-

dents to move to the state’s large regional

hubs or to urban centers such as

Anchorage and Fairbanks. The study

found that, although there has been a cor-

relation between high fuel costs and rural

migration, the net effect of movement

between various communities and centers

is quite small.

Fuel price hikeMuch of rural Alaska depends on fuel

oil and diesel fuel for heating buildings

and generating electricity. The extreme

run up in the price of oil prior to 2014

caused considerable pain in many remote

villages. And, given the difficulty of

transporting fuel to these villages, espe-

cially in the winter, the fuel prices tend to

become locked into whatever prices pre-

vail at the time the annual fuel supplies

are obtained. Moreover, transportation

costs compound the fuel cost problem.

In some regions, in particular on the

North Slope where there is access to nat-

ural gas, the fuel price situation has not

been as dire. So, in the interest of restrict-

ing its results to regions where the fuel

prices have been high, the ISER

researchers only analyzed data for

regions of western and northern Alaska

that lack road or year-round water access.

Regional hubs studied consist of

Dillingham, Bethel, Nome, Utqiagvik

and Kotzebue.

The researchers used anonymous data

from Alaska Permanent Fund dividend

applications to determine adult popula-

tion levels in different communities from

2003 to 2015 and to determine how many

people had moved to and from villages,

regional hubs and urban centers each year

during that period. Migration patterns

considered included movements between

villages in the same general area, move-

ments between areas, movements out of

rural Alaska, and movements between

regional hubs and areas outside a high-

cost rural region.

Statistical correlationsThe study involved calculating statisti-

cal correlations between these data and

fuel prices, the size of the labor force in

each community, the ratio of employment

levels to the labor force, and the average

earnings per employed person. The

researchers conducted statistical tests to

assess the extent to which any correla-

tions resulted simply from general trends

over time. And data for people employed

as teachers, seafood processing workers,

oil workers, mining workers, construction

workers and pilots were excluded, since

these people tend not to be long-term

rural residents.

The statistical analysis indicated that,

while high fuel prices have impacted

migration patterns within Alaska, the

effects are subtle and complex. In gener-

al, high fuel prices tend to motivate rural

Alaska residents to move from communi-

ties with high oil prices to places where

prices are lower. But the overall effect is

quite small.

Rather than inducing people from

small villages to move to urban centers,

the high fuel prices tended to be associat-

ed with increased movement within rural

Alaska, both from villages to regional

hubs and from regional hubs to villages.

And increased movement to urban Alaska

in response to higher fuel prices came

entirely from the regional hubs, the ISER

report says. In 2008, at the peak of the

fuel price climb, the number of people

moving from regional hubs to urban

Alaska increased by about 180, while the

small number of moves from villages to

regional hubs was balanced by an

increase in the number of moves from the

hubs to the villages.

Small effectOverall, the results confirmed a step-

ping-stone effect, where villagers ending

up in urban centers migrated first to

regional hubs. However, the overall

impact of fuel prices on village popula-

tions was quite small — local labor mar-

ket conditions, individual employment

status and earnings levels had a much

larger impact on migration than did fuel

prices, the ISER study found. In particu-

lar, high earners tended to be more

mobile than people with lower incomes.

In addition, many urban Native

Alaskans move from urban areas to rural

Alaska each year, the ISER report says.

“Energy costs represent one of many

factors affecting decisions to move,” the

report says. “Our results suggest that high

fuel prices were apparently not a salient

factor in those decisions for most rural

Alaska residents, although they may have

had a modest incremental effect for resi-

dents of regional hub communities.” l

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

Fuel costs have small migration impactISER reports results of study into the extent that high energy costs in rural Alaska motivate village residents to relocate

6 PETROLEUM NEWS • WEEK OF APRIL 16, 2017

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the early days of a structural change in

Alaska, the state government is another

story, he noted: “The days of relying

mostly on oil-related revenue to pay the

state’s bills are likely gone. The options

going forward include some combination

of using investment earnings from the

state’s Permanent Fund, continuing to

reduce the size of state government,

implementing new taxes, or reducing the

size of Permanent Fund Dividends. Each

option has its own set of pros and cons,

but the more important point is that the

state’s economy must absorb a permanent

change over the next few years. All other

things being equal — and of course, they

never are — that means our current reces-

sion could linger for a while.” l

continued from page 5

RECESSION REVIEW

page8

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of April 16, 2017

Barrick moves into Yukon; optionsCarlin-type gold project from Atac

CO

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LTD

.

From 2004 through 2011, Novagold Resources completed roughly 13,500 meters of drilling at the Arctic depositin the Ambler mining district, including this hole drilled in 2007. In 2012, Novagold formed Trilogy Metals (thenNovaCopper) to continue the exploration and development of this high-grade volcanogenic massive sulfide proj-ect in Northwest Alaska.

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

NEWS NUGGETSCompiled by Shane Lasley

Constantine, Dowa to test new high-grade prospects at Palmer

Constantine Metal Resources Ltd. April 12 announced plans

for 7,000 meters of drilling this year at the Palmer project,

Alaska in Southeast Alaska. This will mark the first program

under the newly formed joint venture between Constantine (51

percent) and Dowa Metals & Mining Alaska Ltd (49 percent).

The partners have developed a new multi-year plan for

Palmer that includes exploration for new resources across the

district-scale property, as well as expanding and upgrading the

current inferred copper-zinc polymetallic resource of 8.1 mil-

lion metric tons grading 12.6 percent zinc-equivalent. The joint

venture has budgeted US$7 million for this year’s program, the

majority of which will be invested in exploration drilling across

the wider property. Palmer is host to numerous high-quality

prospects with large hydrothermal alteration zones and high-

grade base and precious metal mineralization exposed at sur-

face – most of which have never been drilled. Property-wide

airborne geophysical surveying, geological mapping and

prospecting work are also included in the summer exploration

plans. “This is the first drill program of any real size to test

property-wide targets and will also be the first airborne electro-

magnetic survey to be flown over the entire property.

Meanwhile, we continue to systematically advance the explo-

ration and assessment of the high-grade RW and South Wall

zones,” said Constantine President and CEO Garfield

MacVeigh. The work at the resource area – RW and South Wall

zones – is expected to include drilling, road construction, engi-

neering and environmental studies, and evaluation of a potential

exploration drift for the purpose of continued expansion and

drill definition on the deeper portion of the existing resource.

Program start-up is scheduled for early June.

DNR adds financial, reclamationrequirements to Pebble permit

Alaska Department of Natural Resources April 11

announced significant new requirements in a land-use permit

authorizing the Pebble Limited Partnership to continue care,

maintenance and reclamation on its mining claims in the Bristol

Bay region. The regulatory agency said this decision follows

the review of more than 2,000 public comments and an exhaus-

tive analysis. During the comment period on Pebble’s applica-

tion for the permit, questions arose on the condition of certain

drill holes and whether hundreds of these holes drilled during

active exploration would be properly reclaimed. After review-

ing these concerns, DNR decided to include a financial assur-

ances requirement of US$2 million to the permit it issued.

While financial assurance typically is not required for explo-

ration projects in Alaska, more than 1,300 holes have been

drilled at Pebble and additional work is anticipated as the proj-

ect moves towards permitting and development. The agency is

also requiring inspection, reclamation and closure of 138 drill

holes during the 2017 field season. Not all holes would be

closed during the permit term – roughly half of them would be

maintained for data collection and monitoring. “We have care-

fully considered and applied new stipulations to this permit that

are reasonable, comply with our legal requirements, and

address concerns we heard in the comment period,” said

Natural Resources Commissioner Andy Mack. “We fully rec-

ognize that Pebble is a unique project, in terms of its size, loca-

tion and amount of public interest. Our goal in issuing this per-

mit is to ensure that state lands receive good stewardship, and

that the Pebble Partnership is authorized to do necessary work

on its claims.” While many of the commenters said the Pebble

Partnership had left a mess on the property, DNR said its own

inspections “found the structure and materials to be well main-

South32 looks northBHP Billiton spin-off joins Trilogy, NANA at Upper Kobuk Mineral Projects

By SHANE LASLEYMining News

South32 Ltd., a coal and base metals miner spun

out of BHP Billiton in 2015, has cut a US$150

million deal with Trilogy Metals Inc. to earn up to a

50 percent interest in the Upper Kobuk Mineral

Projects, UKMP, a large land package that blankets

most of the Ambler Mining District in Northwest

Alaska.

South32, which up to this point was focused on

the Southern Hemisphere, has eight mines in

Australia, Africa and South America that produce

aluminum, coal, manganese, nickel and silver.

“This will be their first venture north of the 67th

Parallel, in Alaska,” Trilogy Metals President and

CEO Rick Van Nieuwenhuyse said during an April

10 conference on the agreement.

Under this agreement, South32 has the option to

earn a 50 percent stake in UKMP any time over the

next three years by investing up to US$150 million,

which is about US$50 million more than Trilogy has

in the project so far. To keep this option in good

standing, South32 must invest at least US$10 million

into UKMP annually over the next three years.

"We believe this deal recognizes the quality of

our assets,” said Van Nieuwenhuyse. “By offering to

fund at a 150 percent premium to the investment

made by Trilogy, the terms recognize the high-qual-

ity asset base that Trilogy has assembled at the

UKMP. In terms of the option, South32 will invest

up to US$30 million to explore, expand and advance

the already sizeable metal endowment identified to

date.”

Additionally, the Perth, Australia-based miner has

agreed to reimburse Trilogy up to US$5 million per

year over the next three years as the exploration

company continues to carry out its plans in the dis-

trict.

This means that the Ambler mining district will

be a busy place this summer.

Trilogy still plans to continue a US$7.1 million

program aimed at finalizing a pre-feasibility study

for Arctic, a volcanogenic massive sulfide deposit

that hosts some 1.65 billion pounds of copper, 2.62

billion lb of zinc, 444 million lb of lead, 610,000

ounces of gold and 45.3 million oz of silver in the

inferred and indicated resource categories.

South32, in the meantime will be making its first

US$10 million investment in the expansion of

Bornite, a high-grade carbonate hosted deposit about

16 miles south of Arctic that hosts another roughly

6.4 billion lb of copper.

Trilogy will manage the work at both Arctic and

Bornite.

NANA welcomes new partnerUKMP is a district-scale project that includes a

block of state mining claims held by Trilogy that

stretches 70 miles (110 kilometers) across the

Ambler district and an adjacent land package owned

by NANA, the Alaska Native Regional Corporation

that represents the Inupiat people of Northwest

Alaska.

Arctic, along with more than a dozen other VMS

deposits and prospects rich in copper, zinc, lead,

gold and silver are found on the Trilogy claims.

Bornite and other copper-rich prospects are located

on the NANA lands.

A 2011 agreement brought these two high-grade

Ambler district properties together into what is now

known as UKMP.

NANA, which has an option to be a 16 to 25 per-

cent equity partner in the project or receive 15 per-

cent net proceeds royalty from any mines developed

on the 353,000-acre land package, sees the new part-

ner with ample funds and mining knowhow as a pos-

itive step for UKMP.

“NANA looks forward to partnering with Trilogy

and South32 on this new phase of exploration,” said

NANA President and CEO Wayne Westlake. “Our

region has benefited from responsible resource

development, and we value working with companies

that advance our land’s mineral potential and create

shareholder value while respecting our traditionalsee NEWS NUGGETS page 8

see SOUTH32 page 9

8NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF APRIL 16, 2017

Shane Lasley PUBLISHER & NEWS EDITOR

Rose Ragsdale CONTRIBUTING EDITOR

Mary Mack CEO & GENERAL MANAGER

Susan Crane ADVERTISING DIRECTOR

Heather Yates BOOKKEEPER

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Curt Freeman COLUMNIST

J.P. Tangen COLUMNIST

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Forrest Crane CONTRACT PHOTOGRAPHER

Renee Garbutt CIRCULATION MANAGER

Mapmakers Alaska CARTOGRAPHY

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

NEWS • 907.229.6289publisher@miningnewsnorth.com

CIRCULATION • 907.522.9469 circulation@petroleumnews.com

ADVERTISING Susan Crane • 907.770.5592scrane@petroleumnews.com

FAX FOR ALL DEPARTMENTS907.522.9583

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

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

Several of the individualslisted above are

independent contractors

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

NORTHERN NEIGHBORSCompiled by Shane Lasley

Barrick makes move on Atac’s Carlin-type goldAtac Resources Ltd. April 10 announced that Barrick Gold Corp. has signed an

agreement to earn up to a 70 percent stake in the Orion project, which blankets the

central section of Atac’s Rackla Gold property in the Yukon Territory. This deal

consists of a potential total investment by Barrick of roughly C$63.3 million,

including a C$8.3 million private placement and a two-staged C$55 million explo-

ration earn-in option on Orion. Previously, Atac subdivided its roughly 185-kilo-

meter- (115 miles) long Rackla property into two projects – Rau, an area at the

western end of the property that includes the Tiger gold deposit, and Nadaleen, an

area that includes the Orion deposit and a number of other Carlin-style gold dis-

coveries made in the eastern half of Rackla. The property is now divided into three

projects – Rau, which encompasses 660 square kilometers (255 square miles) at the

western end of Rackla; Osiris, a 302-square-kilometer (117 square miles) property

at the eastern end of Rackla that hosts the Osiris, Conrad, Ibis, and Sunrise discov-

eries; and Orion, a 780-square-kilometer (301 square miles) section in the middle

that hosts the Orion, Anubis, and eight other early stage Carlin-type gold prospects.

It is this central project that Barrick has the option to earn up to 70 percent. To earn

an initial 60 percent interest, Barrick must spend C$35 million on exploration at the

project over the next five years. Upon spending this initial earn-in, the companies

will form a joint venture and Barrick can earn another 10 percent interest in Orion

by investing an additional C$20 million before the end of 2026. “Atac's generative

exploration skills and Barrick's knowledge and experience in Carlin-style systems

will be a great combination to unlock the full potential of this district," said Rob

Krcmarov, executive vice president, exploration and growth, Barrick. The gold

major also agreed to buy 16.68 million Atac shares at C50 cents each. Atac plans

to apply the C$8.34 million raised towards its planned C$10 million exploration

program on the Rau and Osiris projects in 2017. Upon closing of the private place-

ment, expected on May 3, Barrick will own approximately 19.9 percent of Atac’s

shares.

Minto output down as mine looks beyond 2017Capstone Mining Corp. April 11 reported that its Minto Mine in the Yukon pro-

duced 5,500 tons of copper during the first quarter. The company said grade for the

see NORTHERN NEIGHBORS page 9

ATA

C R

ESO

UR

CES

LTD

.

Atac Resources discovered the Orion deposit at its Rackla property in the Yukon withthis 2015 drill hole, which cut 47.24 meters averaging 3.79 grams per metric ton gold.Barrick Gold has optioned a block of property that blankets Orion and a number ofother Carlin-type gold prospects across the center section of the Rackla property.

l C O L U M N

May we always live in interesting timesAs Chicken Little might say, ‘When the sky is falling, be sureyour health insurance is current and look out for the big pieces’

By J. P. TANGENSpecial to Mining News

Imust be getting old because I remem-

ber when, in 1966, Robert Kennedy

first uttered the so-called Chinese curse

about living in interesting times. It is

probably one of his more memorable lines;

but somehow, it has been prescient to me

in the sense that the succeeding fifty years

have actually been interesting. Some

might say that they have become more and

more interesting each succeeding year.

Surely the social changes have been

dramatic, and the evolution of science and

technology has been astounding to witness.

Possibly the only thing that has not

changed is the political bickering between

our respective political parties. It is com-

mon to point to the divide as if it hasn’t

always been that way; however, in the six-

ties there was no shortage of people

marching in support of whatever cause

they then held dear, whether it was the war

in Viet Nam, civil rights, feminism or the

environment.

During the ensuing half century, presi-

dents have come and gone, each with his

own flaws and insights, and each drawing

his own flak from the commentators and

comics as if the ship of state was about to

founder at any moment.

In the meantime, the communist men-

ace has literally disappeared. The biggest

domestic threat most Americans face is

dying of old age. You can hardly see the

air that you are breathing anymore; and

Lake Erie is swimmable. Our nation is the

last superpower standing, and our people

are still marching in the streets over one

perceived inequity or another.

A quick survey of the various contem-

porary issues is revealing: Immigration is

difficult to get excited about – we are a

land of immigrants, and most people in the

country, after two or three generations,

have virtually no palpable affinity to their

ancestral homeland.

With regard to undocumented aliens,

Mexico, at one point, was the largest

source of such hombres; however, since

American capital has determined to

domesticate manufacturing facilities in

Mexico, the stream of migration across the

southern border has weakened to a trickle,

and our agricultural industry is at signifi-

cant risk of suffering because of it.

Gender discrimination is a giant “Ho

Hum” for most people.

Gun control can be pretty much boiled

down to whether you somehow see a

nexus between the murder rate in Chicago

and the odd psychopath who shoots up

public places.

Abortion is ultimately a question of

who pays for it. The “pro” contingent

wants the rest of us to pick up the tab;

whereas, the “anti” forces want providers

to do it in another state.

Since no one can ever get all the health

care they want, the debate distills to

whether the United States should provide

international police services to the entire

western world, or should we redirect our

defense budget into the pockets of insur-

ance and pharmaceutical company execu-

tives.

When it comes to resource develop-

ment the rule is that disturbance of Mother

Earth cannot be tolerated in any location

where the operations might possibly do

anything upstream, downstream, above or

below my back yard; however, it is fine to

harvest the resources of Arabia, Botswana

or Chile –the only criterion being that it

must be far away and invisible.

What about the Alaska budget? It is

interesting to watch our legislature as it

tries to figure out how to pay the state’s

bills. It is almost as if we are poor, on the

one hand, and have never been poor on the

other. Alaska has virtually unlimited min-

eral wealth, including oil, gas and coal; we

have vast forests of timber; we have abun-

dant fisheries; we have tourist attractions

in profusion; and we have a legislature that

cannot put away the credit card.

Understandably, if seventy percent of our

operating budget is dedicated to health

care and education (including the universi-

ty system), we simply cannot just erase the

other thirty percent to meet the shortfall.

Of course, we also cannot take away any-

one’s entitlements, and we cannot tax any-

one. Accordingly, the only realistic answer

to the problem is to wring our hands.

That brings us full circle. The problems

that we have are, at some level, all artifi-

cial. They will never go away; they will

just become less interesting. Sooner or

later, they will be displaced by someone’s

idea for a new and different topic of con-

versation.

Recent articles by EPA refugees, for

instance, suggest that women and children

will die if the Obama-era environmental

regulations are vitiated, as if to imply that

with just one more push, we can ensure

that everyone will live a long and healthy

forever.

The last time I checked, the laws and

regulations that the Trump Administration

are doing away with weren’t in existence

until a few years ago; so we aren’t actually

losing ground, we are cleaving to the not-

so-bad status quo. A lot of us can live with

that.

In the meantime, the six major mines in

Alaska are chugging along, paying their

freight and providing thousands of steady

jobs from one end of the state to the other.

Oil is still flowing, fisher-folk are still fish-

ing and the Alaska Railroad is still chasing

moose off the tracks while ferrying gawk-

ers from Seward to Fairbanks.

It is fair to say that we do live in inter-

esting times; however, it takes only a

moment to realize that every moment or

our existence is “interesting.” Breathe

deep, while you sleep. l

Mining & thelaw

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

subsistence lifestyle.”

Expanding BorniteSouth32 wants to pick up where Trilogy

left off at Bornite, expanding the high-

grade underground portion of this deposit.

“The immediate exploration focus will

be to expand the known copper mineraliza-

tion along the northern frontier of the

Bornite deposit. With only three field sea-

sons of exploration drilling at Bornite, we

have already identified a resource in excess

of 6 billion pounds of copper,” said Van

Nieuwenhuyse.

Roughly 2.7 billion lb of this copper is

encompassed in an open-pit resource aver-

aging roughly 1 percent copper.

The remaining roughly 3.7 billion lb is

located in a deeper underground resource

that averages about 2.9 percent copper.

Already the highest grade and largest

portion of Bornite, this underground

deposit remains open along a 1,000-meter

wide front to the north.

“During our last year of drilling at

Bornite in 2013, five of the last holes

drilled for exploration intercepted signifi-

cant copper intervals,” Van Nieuwenhuyse

said.

Hole RC13-0220, the most northeaster-

ly these holes, cut three very high-grade

intervals from 877 to 923 meters (at a 2.0

percent cutoff): 5.9 meters of 6.66 percent

copper; 9.9 meters of 2.48 percent copper;

and 19.7 meters of 2.24 percent copper.

Hole RC13-0224, drilled about 800

meters west of hole 220, cut five high-

grade intercepts from 579 meters to 755

meters along this northern front: 19.5

meters of 3.02 percent copper; 16.8 meters

of 2.36 percent copper; 39.5 meters of 2.37

percent copper; 8.6 meters of 3.26 percent

copper; and 6.5 meters of 7.7 percent cop-

per.

South32 and Trilogy have a plan to drill

at least seven holes aimed at extending the

1,000-meter front a further 400 meters

north.

These holes are expected to be up to

1,400 meters deep as they trace the high-

grade copper further under the hillside to

the north.

The 2017 program at Bornite will also

include a ground gravity geophysical sur-

vey; further geochemical surveys; metal-

lurgy; and continued hydrology studies.

Continuing Arctic planAs drills are turning at Bornite, Trilogy

will continue with its original plan to final-

ize a pre-feasibility study that will outline

the engineering and financial parameters of

developing an open-pit mine at Arctic.

In 2013, Trilogy completed a prelimi-

nary economic assessment that provided a

first glimpse of what such a mine might

look like.

This scoping level study outlined a

10,000-metric-ton-per-day mill at Arctic

that is anticipated to produce roughly 1.5

billion lb of copper, 1.8 billion lb of zinc,

289 million lb of lead, 30.5 million oz of

silver and 349,000 oz of gold over a 12-

year mine-life.

The mine outlined in the 2013 PEA was

based on 23.85 million metric tons of indi-

cated resource averaging 3.26 percent (1.71

billion lb) copper, 4.45 percent (2.34 billion

lb) zinc, 0.76 percent (400 million lb) lead,

0.71 grams per metric ton (550,000 oz)

gold, and 53.2 g/t (40.8 million oz) silver.

Additionally, Arctic hosted 3.63 million

metric tons inferred resource averaging

3.22 percent (239 million lb) copper, 3.84

percent (285 million lb) zinc, 0.58 percent

(43.2 million lb) lead, 0.59 g/t (60,000 oz)

gold at the time of the PEA.

Over the past two years, the exploration

company has completed 6,000 meters of

drilling at Arctic. While not all of this

drilling was aimed at resource expansion

and upgrade – some of the holes were

drilled to gather geotechnical, hydrological

and metallurgical data for the pre-feasibili-

ty study – they were all drilled into deposit.

Trilogy said an updated resource, which

is expected to upgrade much of the inferred

resource into the higher confidence meas-

ured and indicated categories, is slated to

be published in the next month or so. In

turn, much of the measured and indicated

resources will convert to reserves once the

prefeasibility study is complete, which is

expected early in 2018. l

9NORTH OF 60 MINING

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continued from page 7

SOUTH32

tained.” DNR and Alaska Department of Environmental

Conservation also could not find any evidence of prob-

lems with drill holes cited in comments received. DNR

completes regular inspections of the Pebble site and said it

will investigate the drill holes in question again this sum-

mer. The Pebble Partnership said it has full-time staff

responsible for care and maintenance at Pebble. This

includes inspections and, when necessary, repairs of the

more than 1,300 drill holes on the property. “We will con-

tinue our site operations in 2017 in full compliance with

the state’s permit conditions, and in a manner that protects

the broader public interest in the lands and resources sur-

rounding the Pebble property,” said Pebble Partnership

CEO Tom Collier.

Kensington gold production dipsCoeur Mining Inc. April 7 reported decreased gold pro-

duction at its Kensington Mine in Southeast Alaska.

Kensington recovered 26,197 ounces of gold during the

first quarter, a 22 percent drop from the previous quarter

and 18 percent less than the first quarter of 2016. This dip

in production is primarily due to anticipated lower ore

grades due to mine sequencing. The average grade of

material processed at Kensington during the first quarter

was 0.17 ounces per ton gold. This compares to 0.22 oz/t

gold in the fourth quarter of 2016 and 0.21oz/t during the

first quarter of last year. Coeur said the lower grade is and

anticipated the slump in gold production. The company

anticipates these grades to increase for the balance of

2017. Development of Jualin, a higher grade deposit at

Kensington, remains on pace for initial production later

this year. Coeur’s five operations in the United States,

Mexico and Bolivia produced 3.9 million oz of silver and

88,218 oz of gold, or 9.2 million silver-equivalent oz, dur-

ing the first quarter.

BLM extends Ambler Road scopingU.S. Bureau of Land Management April 7 announced a

nine-month extension of the scoping period for the Ambler

Road project, a proposed 211-mile road that would run

west from the Dalton Highway along the southern

foothills of the Brooks Range to the Ambler Mining

District. In February, BLM announced a 90-day scoping

period for the project that was slated to expire on May 31.

That expiration has now been extended to Jan. 31, 2018,

for a total of 338 days of scoping. Tim La Marr, manager

of BLM’s Central Yukon field office, said public meetings

held this fall and winter would provide stakeholders busy

with subsistence and other summer activities a better

opportunity to comment. If built, the Ambler Road would

provide access to the Upper Kobuk Minerals Project,

being advanced under a partnership between Trilogy

Metals Inc., South32 Ltd. and NANA Regional Corp. In

2016, Alaska Industrial Development and Export

Authority submitted an application for rights-of-way, per-

mits, and related authorizations for the proposed road.

BLM, the lead agency, filed a notice of intent in February

to prepare an environmental impact statement for the road.

The purpose of the public scoping process is to determine

relevant issues that will influence the scope of the EIS and

to guide the process.

Coventry publishes high-gradeCU resource for Caribou Dome

Coventry Minerals Ltd. April 5 published a mineral

resource estimate for Caribou Dome and said it has

begun a preliminary scoping study to evaluate the via-

bility of developing an open-pit mine at this high-grade

copper project in Southcentral Alaska. Using a 0.5 per-

cent cut-off grade, 2.8 million metric tons of total

resource (measured, indicated and inferred) averaging

3.1 percent (86,000 metric tons) copper has been delin-

eated at Caribou Dome. This includes 1.6 million metric

tons of resource averaging 3 percent (48,900 metric

tons) copper considered amenable for open-pit mining

and 1.2 million metric tons averaging 3.2 percent

(37,300 metric tons) considered underground resource.

This resource is found along 800 meters of strike around

a historically explored area at Caribou Dome. Over the

past two years, Coventry has identified several other

areas of high-grade mineralization along a strike length

of 11 miles at Caribou Dome, including zones immedi-

ately northeast and southwest of the deposit. The com-

pany also pointed out that the second deepest hole

drilled at the Caribou Dome deposit cut 15.4 meters

averaging 7 percent copper, indicating the potential to

extend the deposit to depth. Coventry said it plans to tar-

get both the strike and depth extension of Caribou

Dome, though no details of a 2017 program where

reported. The resource reported conforms to JORC stan-

dards, the Australian standard for reporting exploration

results that is similar to NI 43-101 in Canada. Coventry

is headquartered in Perth, Australia. l

continued from page 7

NEWS NUGGETS

quarter was lower than originally planned due to mine

plan sequencing changes affecting timing of ore to the

mill. A number of changes were made to optimize the

mine plan in anticipation of the extension of operations

at Minto beyond 2017 and to reduce re-handling costs.

As a result, more low-grade, partially oxidized ore was

directed to the mill causing recoveries to be slightly

behind plan, offset by higher throughput. Capstone’s

three producing mines – Minto, Pinto Valley (Arizona)

and Cozamin (Mexico) – produced a combined 20,900

metric tons of copper, with additional by-products of

zinc, molybdenum, lead, silver and gold. l

continued from page 8

NORTHERN NEIGHBORS

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By ALAN BAILEYPetroleum News

The U.S. Coast Guard has issued a

request for information, seeking

questions, comments and feedback relat-

ing to the construction of a new polar ice-

breaker. The RFI comes as part of ongo-

ing market research that the agency is

conducting with the U.S. Navy into spec-

ifications for an icebreaker, including hull

structure, propulsion, electrical plants,

weaponry, outfitting and auxiliary sys-

tems, the Coast Guard said. Companies

are invited to submit responses by June 6.

New specificationIn January U.S. Coast Guard

Commandant Adm. Paul Zukunft said

that the Coast Guard had developed a

new icebreaker specification. The Coast

Guard now says that it is releasing a draft

specification for a heavy polar icebreaker

and that the new RFI seeks feedback from

industry on that specification.

In February, as part of the same pro-

gram, the Coast Guard awarded five con-

tracts for heavy polar icebreaker design

studies and analysis. The purpose of that

initiative was to identify design

approaches that would reduce acquisition

costs and production timelines, with the

contractors asked to investigate major

design cost drivers; approaches to

addressing potential acquisition, technol-

ogy and production risks; and benefits

associated with different types of produc-

tion contract.

Current icebreakersCurrently the Coast Guard only oper-

ates two polar capable icebreakers: the

Healy, a medium duty icebreaker, much

used as a base for polar research, and the

Polar Star, which is a heavy icebreaker

but is 41 years old and nearing the end of

its operational life. A third icebreaker, the

Polar Sea, sister ship to the Polar Star, is

laid up in port. According to a report by

the U.S. Naval Institute, in February Rear

Adm. Bruce Baffner of the U.S. Coast

Guard told a symposium of the American

Society of Naval Engineers that the Coast

Guard had determined that upgrading the

Polar Sea to an operational state would

not be cost effective. Instead, the vessel

had become a parts donor for the Polar

Star, Baffner said.

Concern about U.S. dependence on

just two icebreakers, given the country’s

roles in both the Arctic and the Antarctic,

has for several years been the subject of

much debate but little funding. President

Obama, towards the end of his presiden-

cy, proposed accelerating the replacement

of the country’s existing heavy icebreaker

while also planning for additional ice-

breakers. The Coast Guard says that it

will need a minimum of two new heavy

icebreakers, to ensure year-round access

to the polar regions and to provide some

self-rescue capability.

But, while the agency has funding to

conduct initial spadework into icebreaker

design, the major funding required for

heavy icebreaker construction remains

elusive.

The Coast Guard projectAccording to a March 2017 report to

Congress by the Congressional Research

Service, the Coast Guard’s project to

acquire a new polar icebreaker began in

2013, with an appropriation of $15.6 mil-

lion through to fiscal year 2016. The

Coast Guard’s objective was to start ice-

breaker construction in 2020. And the

agency has now requested $150 million

in funding for the project in fiscal year

2017, to pay for the planning of design

activities, the report says.

The funding for 2017 would come as

part of the Coast Guard’s five-year capital

investment plan for fiscal years 2017 to

2021. That plan would require a total

spend of $780 million on the icebreaker

project, including the $150 million

requested for 2017, the report says.

Although there is no official estimate

for the total acquisition cost for a new

heavy polar icebreaker, that cost, includ-

ing design work, is thought to be around

$1 billion, the report says.

The report also comments that in

October 2016, as part of a request for

information for feedback on the Coast

Guard’s approach to icebreaker acquisi-

tion, the agency had presented a schedule

for acquiring three icebreakers, with

acquisition of materials for the first vessel

starting in the fourth quarter of fiscal year

2019, and delivery of the vessels taking

place between the fourth quarter of fiscal

year 2023 and the second quarter of fiscal

year 2026.

A timing concernAnd a heavy polar icebreaker that

begins construction in 2020, as in the

Coast Guard’s originally stated objective,

might enter service in 2024 or 2025, the

report says. Meanwhile, the Polar Star’s

current service life will end somewhere

between December 2019 and December

2022, a situation that would likely require

the Coast Guard either to extend the Polar

Star’s service through further refurbish-

ment and repair of the vessel, or to lease

another icebreaker from somewhere, the

report says. l

PETROLEUM NEWS • WEEK OF APRIL 16, 2017 11

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l N A T U R A L G A S

Donlin Gold plans Cook Inlet gas linePipeline for fuel to planned gold mine would boost demand for Cook Inlet gas but development is still several years in the future

By ALAN BAILEYPetroleum News

Donlin Gold Inc, the company hoping to develop a

major gold mine to the north of the Kuskokwim

River, is planning to use Cook Inlet natural gas delivered

by pipeline for power generation at the mine, Kurt

Parkan, the company’s external affairs manager, has told

Petroleum News. At one time the company had consid-

ered using imported liquefied natural gas for the project

but is now confident that there would be adequate sup-

plies of gas from the Cook Inlet basin at a workable price.

Parkan said that his company has been in discussion

with Cook Inlet gas producers and has become confident

with the concept of a Cook Inlet gas supply.

The Cook Inlet gas industry suffers from the problem

of insufficient gas demand in relation to the amount of

gas potentially available for delivery to the gas market.

Donlin Gold could use about 33 million cubic feet of gas

per day, a figure that represents about 10 percent of the

local demand in the Anchorage and Southcentral gas mar-

ket, Parkan said.

EIS in progressHowever, it would likely be several years before the

Donlin Gold mine would go into operation. The U.S.

Army Corps of Engineers has completed a draft environ-

mental impact statement for the project, has gathered

public comments on the draft and anticipates issuing a

final EIS sometime around March 2018. A record of deci-

sion would likely follow around July of that year. If

Donlin Gold’s owner companies then decide to proceed

with the project, design work for the mine could take a

couple of years, with construction then taking a further

four years to complete, Parkan said.

The gas supply concept for the mine involves a 315-

to 320-mile, 14-inch steel gas pipeline from Cook Inlet,

connecting to the Cook Inlet gas transmission system at

Beluga, on the west side of Cook Inlet, Parkan said. The

line would run north through the Susitna Valley and

cross the Alaska Range in the area of Rainy Pass, before

heading west to cross the Kuskokwim River to the mine

site. l

l G O V E R N M E N T

Coast Guard issues polar icebreaker RFIAgency continues to pursue an objective of building new vessels to maintain and bolster U.S. ability to operate in polar regions

Although there is no officialestimate for the total acquisition

cost for a new heavy polaricebreaker, that cost, includingdesign work, is thought to be

around $1 billion, the report says.

12 PETROLEUM NEWS • WEEK OF APRIL 16, 2017

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Q-ZResource Development CouncilSTEELFABSourdough Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Tanks-A-LotThe Local PagesUnique MachineUnivar USAUsibelliVolant ProductsWaste Management

Marathon selects Fluor for two refinery contractsFluor Corp. recently announced that it was selected by a division of Marathon Petroleum

Corp. to execute the engineering and procurement scope for a major reconfiguration atMarathon’s Galveston Bay and Texas City, Texas, refineries. Fluor will book the undisclosed con-tract value into backlog in the first quarter of 2017.

“Fluor continues to provide sustaining capital services at five Marathon sites across theUnited States, and has supported the Texas City and Galveston Bay operations since 2013,”said Mark Fields, president of Fluor’s Energy & Chemicals business in the Americas. “Having

previously executed the initial studies and early engineering for these projects, we are proud toprogress them through the engineering and procurement phase.”

The reconfiguration will create a more efficient operation, allowing the two refineries toachieve updated U.S. Environmental Protection Agency tier 3 gasoline sulfur standards. Thescope includes a new unit, modernization of several existing units and modifications to the util-ities and off-sites to support the scheduled process changes and refinery connections.

Fluor is also performing the front-end engineering and design work for Marathon’s SouthTexas asset repositioning program.

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

Milne Point asks for pipeline changesPlanned suspension of Oliktok Pipeline changes supply issues at Milne Point, which now plans to use local natural gas supplies

By ERIC LIDJIFor Petroleum News

A proposed suspension of the Oliktok Pipeline is rever-

berating through the pipeline grid.

The Hilcorp Alaska Inc. subsidiary Milne Point Pipeline

LLC recently asked state regulators to eliminate certain

requirements related to a proposed connection between the

Oliktok Pipeline and the Milne Point Product Pipeline.

“Due to Oliktok’s suspension of service, there are no cur-

rent plans for reconnecting the Milne Point Product

Pipeline to Oliktok for transporting natural gas,” Milne

Point Pipeline wrote on April 4. “As a result, for the fore-

seeable future the Milne Point Product Pipeline will only be

transporting natural gas from the Milne Point Field to

Module 68 to fuel the generators located there.”

In early May 2016, Milne Point Pipeline applied to

amend its certificate to allow for natural gas shipments. The

company was planning to connect the Milne Point Product

Pipeline to the Oliktok Pipeline to obtain gas supplies to

fuel Module 68 at Milne Point.

The Regulatory Commission of Alaska approved the

certificate amendment request in early November 2016.

The approval included several provisions. One required

Milne Point Pipeline to submit a connection agreement at

least 45 days before connecting to the Oliktok Pipeline.

Another required Milne Point Pipeline to verify, at least 30

days before connecting to the Oliktok Pipeline, that its

pipeline had been “properly flanged and that the section of

the Milne Point Product Pipeline downstream from Module

68 will remain filled with nitrogen.” Milne Point now wants

the commission to waive those provisions.

Changing demandIn mid-February 2017, the ConocoPhillips Co. trans-

portation subsidiary Oliktok Pipeline Co. asked the com-

mission for permission to temporarily suspend transporta-

tion service.

Its primary customer, ConocoPhillips Alaska Inc., had

announced in late 2016 that it was planning to discontinue

natural gas shipments on the pipeline for the immediate

future.

The Oliktok Pipeline connects the Prudhoe Bay unit to

the Kuparuk River unit, with a connection at the Milne

Point unit. The pipeline is certificated to carry either natural

gas or natural gas liquids, although natural gas liquids ship-

ments were discontinued in 2014.

In its February 2017 filing, Oliktok Pipeline said it had

not made shipments to the Milne Point unit since 2002.

Without the demand of ConocoPhillips at the Kuparuk

River unit, “there is no current need for natural gas trans-

portation service on the Oliktok Pipeline.”

Without a way to obtain supplies through the Oliktok

Pipeline, Milne Point Pipeline now intends to use natural

gas from the Milne Point field to fuel the Module 68 gener-

ators.

One result of using a local supply of natural gas is that

the company will be changing the direction of flow along

the Milne Point Pipeline. As such, “the flanging require-

ments will be changed such that the flange will need to be

placed at the Oliktok side of Module 68 rather than the

Milne Point Field side. The unused, flanged-off portion of

the Milne Point Product Pipeline will be the segment run-

ning from Module 68 to the flange at the Oliktok Pipeline,

a distance of approximately 400 feet,” according to the

see PIPELINE CHANGES page 13

PETROLEUM NEWS • WEEK OF APRIL 16, 2017 13

yourself to other states and countries, what do you do?Pruitt: That’s a good question because a lot of time we

try to do an apples-to-apples comparison but the factors

that we have compared to other areas are different when it

comes to cost and difficulty of getting to that the resource

compared to the Permian basin (Texas) or another basin. If

we are going to make those comparisons, we have to be

cautious of trying to make an apples-to-apples.

That’s what gets frustrating, is we automatically say X

does it this way. Well OK what are some of the other fac-

tors and how do we include our factors in the discussion.

Other countries that have a different regime like Iraq and

Iran, you can’t compare yourself to that situation. At the

same time, we can’t compare ourselves apples-to-apples

with Texas and North Dakota.

We still have to ask ourselves why are people going

into the Permian basin? North Dakota is having that same

discussion. While they are flocking to the Permian, they

are not flocking to the Bakken the same way they were a

few years ago.

They are going to be asking those same questions. It’s

not necessarily the tax rate as much as it is the other fac-

tors. Don’t make it apples-to-apples. You have to think

about what are all the different factors that make this an

attractive place.

Petroleum News: HB 111 is also being used as a bar-gaining chip in a very hard and fast way in SB 26. Thatseemed to upset you. Talk about that.

Pruitt: The wording especially is what I was concerned

about. My first year here, when we saw language on ener-

gy projects that said if the governor vetoed one of the

energy projects, all the projects would be vetoed. We stood

our ground as a House for 27 days in a special session

saying that is a separation of powers issue and you can’t

do that. Here I’m looking again at something that says

something to the Senate you can’t pass this piece of legis-

lation, unless you agree to these other two stipulations,

and oh by the way one of them has to be exactly the way

we say it’s going to be.

To me I think there are ethics problems with that. We

are finding out now whether it’s legal or not. That right

there totally destroys the purpose of why we have these

checks and balances. You can’t do that. You shouldn’t do

that. It’s very disturbing. I totally get that sometimes the

House and Senate don’t agree, but it’s a different thing to

flat out say you’re only going to accept our issue or this is

going to void. They know the Senate wants SB 26 passed.

They already passed SB 26 twice already once last year

and once this year. So it was very disturbing to read those

two provisions in that contingency language.

Petroleum News: Something you haven’t heard a lotabout since early in the session is the gas line. Do youmake anything of the silence or is it that you’re so focusedon the budget, oil tax bill and other budget gap bills?

Pruitt: It’s a good question. Because of the fiscal chal-

lenges that we’ve faced, it almost got put to the side and I

think we know we can’t do that. There are definitely peo-

ple in my district who told me they were concerned about

us going forward on the gas line. That being said, I don’t

want to be out there to kill a project. I don’t know all the

details myself. I don’t know all of the things that are shift-

ing. The concern that I have with AGDC is one the silence

and two the fact that legislators don’t have any idea.

They haven’t communicated to legislators what they

are doing. They handed out a glossy form and someone

came by and dropped off chapstick and mints. As much as

I love the Iditarod, was $50,000 to advertise with the

Iditarod the right direction? They haven’t shown us right

now that they are using the money wisely and they

haven’t communicated to make us think otherwise. I don’t

want to kill it. I really want them to communicate. I really

want that. I want to be able to know whether we should

continue to support them. We need to understand should

we continue with the $100 million we’ve already given

them.

Petroleum News: What would you like to hear fromthem?

Pruitt: I’d like to hear a little more detail in terms of

what are you doing and how are you going to pay for this

project. That’s a piece of it. When the governor was talk-

ing about the president of China saying he wanted to take

an equity interest potentially, I think Alaskans would be

very concerned with that. Alaskans would still struggle

with some place like Japan and South Korea, even as they

are allies and countries we would be more comfortable

with. So we need to understand what are you doing right

now? Where are you looking? How are we going to pay

for this? I think it’s time we bring in the partners we are

using. I know BP is using some of their employees. I’m

not asking to break confidentiality. I’m asking them to

give us something we can talk to our constituents. Bring in

the partners and say why are they still involved in this par-

ticular project and working with you. We haven’t really

heard about that, either.

Petroleum News: What does it tell you that China’sleader lands in Anchorage and wants to talk to our gover-nor?

Pruitt: It definitely is positive. When I visited China,

they highlighted their energy challenges. I remember

being in a meeting with the former chief executive of

Hong Kong in Beijing about one block from Tiananmen

Square. He was talking about the pollution and he said the

people there were asking to clean up the air. The first two

days I was in Beijing, it was beautiful blue skies. The third

day, I understood what they were talking about. I couldn’t

see across the street. And so they know that’s the chal-

lenge they have to deal with and they are looking for those

cleaner sources of energy. So it’s a good thing he came

over, but we have to balance our own interests with the

fact that they also have their own interests at stake. We

can’t sell out to them but they definitely can be a partner

as an end user and we should be engaging in that sense.

Petroleum News: You noted confidentiality. Let’s goback to HB 111. How do you feel about the confidentialityprovisions when it comes to receiving credits?

Pruitt: I’m OK with some additional disclosure to

DNR, AOGCC, whatever the appropriate mechanism. The

worse thing we can do is go to a constituency and say I

know more about it but I can’t talk to you about it. We

shouldn’t put ourselves in a place where we signed a con-

fidentiality report and now we are going to go out there

and say I can’t talk to you. I think we should be cautious

to make sure we have enough information to go out there

and be able to talk about it. There is a balance there. I do

think there needs to be more available to DNR but we

don’t want to get into sharing information that would be

proprietary. Putting it out there could get into SEC or com-

petitive challenges. l

continued from page 3

PRUITT Q&A

l G O V E R N M E N T

AOGCC confirms Cook Inlet Energy fineOn reconsideration agency says $446,000 fine for safety valve system violations at Sword No. 1 was warranted under circumstances

By KRISTEN NELSONPetroleum News

On April 11 the Alaska Oil and Gas Conservation

Commission issued a decision on reconsideration of

an enforcement action against Cook Inlet Energy LLC for

long-term violations of the agency’s safety valve system

regulations at the Sword No. 1 well. In the original decision,

issued May 1, 2015, the commission cited “numerous reg-

ulatory violations” on the safety valve system, as well as the

company’s failure to provide information requested on its

safety valve system compliance policies. The agency origi-

nally proposed a civil penalty of $806,000, an amount it

reduced to $446,000, based on mitigating circumstances.

Components of the original $806,000 penalty included:

$235,000 for a noncompliant safety valve system at the

Sword well — $25,000 for the initial event and $5,000 per

day for operating the well in that condition for 42 days,

$210,000 — for a total of $235,000; $420,000 for violating

the requirement to install a subsurface safety valve in the

Sword well — 84 days at $5,000 per day; $130,000 for vio-

lating the requirements to repair or replace and performance

test the subsurface safety valve, $50,000 for the initial event

and $80,000 for the 16 days Sword remained in production

without a regulatory-compliant subsurface safety valve; and

$21,000 for failing to comply with AOGCC’s request to

provide a written explanation of the disparity between the

company’s written safety valve system compliance pro-

gram and its actions.

AOGCC considered mitigating circumstances and what

it called a history of noncompliance, but said the company

had admitted the need for improving its understanding of

the agency’s regulatory requirements and its communica-

tions with the agency.

An informal review was held at the company’s request

in February 2015 and AOGCC said efforts focused on

improving the quality of the company’s regulatory compli-

ance were discussed.

Based on mitigating circumstances the agency reduced

the penalty to $446,000, an amount which included the full

penalty for the noncompliant safety valve system, $60,000

for violating the requirement to maintain “an operable, test-

ed subsurface safety valve” at the Sword well, $130,000 for

failure to repair or replace and performance test the subsur-

face safety valve after it failed an initial performance test in

February 2014 and $21,000 for failure to provide written

explanations.

At a formal hearing Sept. 13, 2016, the company sum-

marized its objections to the fine proposed. In statements to

the commission prior to the informal review and the formal

hearing Cook Inlet Energy said it had made changes since

the Sword well was drilled, including the replacement of

key personnel responsible for communications with

AOGCC.

Decision on reconsiderationThe commission said in its April 11 decision on recon-

sideration that Cook Inlet Energy does not dispute the vio-

lations, for which AOGCC ultimately imposed penalties of

$446,000, and said the company argued it acted in good

faith, that the violations were mitigated and that the fines

the agency imposed were inconsistent with past fines

imposed by the agency.

AOGCC said the company’s arguments that mitigating

factors warranted a reduction in penalties “are contradicted

by the record. Installation of a non-functional SVS and

CIE’s significant history of regulatory compliance issues

demonstrate its awareness and conscious disregard of the

SVS requirements, and contradict CIE’s ‘good faith’

claim.” The commission cited the company’s awareness

that the safety valve system was nonfunctional and said it

“made no effort to bring the well into compliance until it

received notice of this enforcement action,” continuing to

produce from the well for 42 days with a nonfunctional

safety valve system.

“The potential for harm was significant; that no harm

occurred was simply luck,” the commission said.

The commission said many of the decisions the compa-

ny cited which resulted in lower penalties took place more

than a decade ago, before a substantial statutory increase in

authorized penalties, while other examples “are cited with-

out any articulation as to how the decision cited is inconsis-

tent with the AOGCC’s decision here.”

The denial is the commission’s final decision and may

be appealed to superior court; an appeal must be filed with-

in 30 days of the decision. l

recent company filing.

The 10.4-mile Milne Point Pipeline was built in

2001 to transport natural gas liquids to the Milne Point

unit from an interconnection with the Oliktok Point

Pipeline. But natural gas liquids shipments were sus-

pended in December 2002, after an injection pump

failed.

The Milne Point unit no longer requires natural gas

liquids for enhanced oil recovery and has no potential

customers looking to use the line for natural gas liq-

uids. The RCA allowed the company to isolate the

Milne Point Product Pipeline from the Oliktok Pipeline

in 2007 and allowed it to begin operating as a natural

gas pipeline in late 2016. l

continued from page 12

PIPELINE CHANGES

ice until after the completion of perma-

nent repairs, after the conducting of pres-

sure testing of the line, and after approval

of the restart by government regulators.

Oil leak investigationDivers have also been investigating an

oil leak at the Anna platform on the west

side of the inlet. On April 1 Hilcorp shut

down oil production from the platform

after an oil sheen and bubbles were

observed near one of the platform legs,

following a sudden shuddering of the plat-

form. With a leak in the subsea pipeline

between the Bruce and the Anna platforms

being the suspected culprit, Hilcorp shut

in the line, replacing the oil in the line

with seawater.

However, divers have now inspected

the pipeline and determined that the line is

intact, Hilcorp says. Moreover, a success-

ful hydrostatic pressure test of the line,

observed by officials from state and feder-

al agencies, demonstrated that the line is

in good working order, the company says.

The pipeline was tested to 125 percent of

its maximum operating pressure for eight

hours.

And, so, with the cause of the oil leak

yet to be determined, an investigation of

the incident continues.

Following the gas leak at the Middle

Ground shoal field, Hilcorp began a

review of all of its pipeline assets in the

Cook Inlet. Subsequently the company

found a metering discrepancy between the

volume of gas delivered to a gas pipeline

from the Steelhead platform and the gas

delivered from that pipeline at the point

where the pipeline connects to an onshore

gas processing facility. The company con-

ducted several overflights of the pipeline

route but could not find any indications of

a subsea gas leak. However, as a precau-

tion, the company has closed down the

pipeline and filled the line with seawater,

pending a further investigation of the

metering discrepancy.

Investment in the stateSince entering the Cook Inlet oil and

gas industry in 2011 Hilcorp has invested

several hundred million dollars in the

region and, in the process, has upped oil

production from the Cook Inlet basin and

has been the key player in averting a pend-

ing utility gas supply crisis in Southcentral

Alaska. However, in its operations both in

Cook Inlet and on the North Slope, the

company has on several occasions run

afoul of Alaska oil and gas safety laws.

The Alaska Oil and Gas Conservation

Commission has fined the company sever-

al times for regulatory violations. In

response, Hilcorp has expressed its desire

to work openly to ensure safe and respon-

sible operations.

During an Alaska House Resources

Committee meeting on April 5 Kristin

Ryan, director of the Division of Spill

Prevention and Response at the Alaska

Department of Environmental

Conservation, commented that Hilcorp

had been working cooperatively with

DEC in responding to the leak in the

Middle Ground Shoal gas line.

“To their credit, they have done every-

thing we’ve asked them to do, even

although we don’t have specific regula-

tions requiring this activity,” Ryan said.

Ryan said that the biggest concern with

the gas leak is the potential for methane

gas to displace oxygen in the water col-

umn, a phenomenon that could impact the

ability of fish to breath. However, tests of

water samples collected by Hilcorp from

the area of the leak had thus far proved

inconclusive, she said. The state’s interest

in natural gas safety has tended to revolve

around the potential for a gas explosion —

the state has not in the past seen any par-

ticular environmental concern with natu-

ral gas pipelines, she said.

Aging assetsHilcorp’s business model particularly

focuses on bringing new life to aging oil

and gas assets. And in Cook Inlet many of

the company’s assets, including several

subsea oil and gas pipelines, date back to

the 1960s. The age of the facilities and the

sudden appearance of three leakage inci-

dents are raising concerns about the over-

all condition of the subsea pipelines.

The Pipelines and Hazardous Materials

Safety Administration, the federal agency

that oversees oil and gas pipeline safety,

now wants Hilcorp to inspect the subsea

oil line that delivers Middle Ground Shoal

oil to shore. The oil line and the gas line

run in close proximity to each other, are

both 8 inches in diameter and are of simi-

lar construction.

“We need to take a look at the infra-

structure in the Cook Inlet and we recog-

nize that it’s been since 2000 since there’s

been a real assessment of what’s out there,

who owns it, what are they doing with it,”

Ryan told House Resources. “We do have

our standards for pipelines that are the

same if it’s a new pipeline or an old

pipeline, and I can say that Hilcorp has

been in compliance with our standards for

their infrastructure.”

Hilcorp runs pigs through its subsea

lines and conducts sonar scans that enable

the company to determine if the pipelines

are adequately supported on the seafloor,

Ryan said. l

projects once proposed for British

Columbia, the province is left to pin its

hopes on a handful of small ventures

which keep edging towards corporate

sanctioning.

The one surviving mega-hope rests

with the Pacific NorthWest consortium

led by Malaysia’s Petronas, which says

only that a review of its economics is

“ongoing,” while declining to provide a

timeline on a possible final investment

decision.

The latest assessment by Petronas is

ominous rather than optimistic, with

Petronas Chief Executive Officer Datuk

Wan Zulkiflee Wan Ariffin offering only a

repetition of his constant refrain.

“We’re doing a total review of the

project and taking into account all the cost

optimization options,” he said in a fuzzy

indication that outright sale of the assets

could be on his list.

The final investment decision has been

delayed for years as LNG markets have

crumbled and environmental opposition

has strengthened.

Wan Zulkiflee said Petronas remains

determined to monetize its “huge (natural

gas) resources,” while the company still

rates its push to a Canadian LNG project

as worthwhile.

But, on a cautionary note, he said that

only 6 million metric tons per annum of

LNG capacity received a final investment

approval in 2016, while another 60 mil-

lion metric tons per year was deferred.

Charif Souki, chief executive officer of

Houston-based Tellurian, said about 270

million metric tons per year of LNG was

traded globally in 2016 and could grow to

365 million metric tons by 2018 — an

increase that could easily be consumed by

the buildout of LNG in the United States

and Australia.

Sierra Club reportEven allowing for its obvious bias, the

Sierra Club issued a report in late March

that demonstrates how the British

Columbia government’s LNG aspirations

got ahead of reality when it approved the

construction of the Site C hydro-power

dam in northwestern B.C.

The C$9 billion gamble (already C$2.4

billion ahead of a 2010 estimate) is

designed to generate 1,100 megawatts,

much of which was intended to be subsi-

dized power for LNG operations.

Site C will “only be needed if LNG

plants are built, which seems increasingly

unlikely due to current and projected mar-

ket conditions,” Sierra said.

“In other words, residential B.C. hydro

bills will have to cover personal use plus

make up the difference between the huge

cost of building Site C and the bargain

basement price that LNG and fracking

companies will pay for their power.”

TransCanada seeking approvalThe one shred of hope for Pacific

NorthWest is word from TransCanada

that it is seeking regulatory approval to

start construction of the North Montney

Mainline pipeline to deliver natural gas

from northeastern B.C. to an export termi-

nal and liquefaction plant near Prince

Rupert.

TransCanada said in a statement that

government approval will allow it to start

work on the pipeline before Petronas

decides whether to proceed with Pacific

NorthWest.

But, even if Petronas backs down,

TransCanada said the C$1.4 billion

pipeline will still be able to feed gas into

existing transmission networks for west-

ern markets when it start deliveries in

April 2019.

Benefits agreementFor those who believe that small hope

is better than no hope, there has also been

a shred of encouragement when the

Kitselas First Nation on B.C.’s north coast

signed a benefits agreement worth C$13

million and a 3,000-acre land grant in

exchange for backing the Pacific

NorthWest and the Shell-led LNG Canada

proposal.

The deal makes the Kitselas the third

First Nation to sign an LNG benefits

accord, which Aboriginal Relations

Minister John Rustad said are corner-

stones in “helping us to build LNG poten-

tial. We have the support we need (from

First Nations) to proceed with projects.”

Meanwhile, other small-size LNG

operators continue their plodding advance

towards final sanctioning, with the Huu-

ay-aht First Nation on Vancouver Island

signing a deal with Steelhead LNG which

the community’s Chief Robert Dennis

said is the First Nation’s “official entry

into the international business world” by

participating through an undisclosed

equity stake in the development of an

LNG terminal.

Steelhead also has National Energy

Board licenses to export 24 million metric

tons of LNG a year, although the compa-

ny is still exploring ways to ship its gas

feedstock from the B.C. or U.S. mainland

to Vancouver Island.

Steelhead CEO Nigel Kuzemko said a

final investment decision will not be

made until 2019 or 2020.

The NEB has also granted a 40-year

export license to Woodfibre LNG for its

planned processing and export facility

near Squamish on Howe Sound north of

Vancouver. The permit involves about 2.1

million metric tons a year.

Woodfibre has yet to roll out a final

timetable covering corporate sanctioning,

construction and a startup date. l

14 PETROLEUM NEWS • WEEK OF APRIL 16, 2017

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inauguration, the Obama Administration

took three major actions related to oil and

gas operations in the Arctic.

In late November 2016, the U.S.

Department of the Interior removed the

Alaska Arctic outer continental shelf from

the final version of its new five-year OCS

oil and gas lease sale plan for 2017 to

2022. In mid-December, President Obama

issued an executive order withdrawing

parts of the northern Bering Sea from

future oil and gas leasing. Shortly before

the end of the year, Obama issued another

executive order “designating the vast

majority of U.S. waters in the Chukchi and

Beaufort seas as indefinitely off limits to

offshore oil and gas leasing” and taking

similar action for a portion of the Atlantic

Ocean.

For the last of those orders, Obama

used a provision in the Outer Continental

Shelf Lands Act of 1953 to withdraw the

offshore areas from leasing. The language

of the act grants broad authority to the

executive branch, and experts have since

debated whether or not the law allows fur-

ther administrations to simply “undo” an

order passed under the law.

Speaking before the National Ocean

Industries Association in early April,

Interior Secretary Ryan Zinke said that the

Trump Administration was working on an

executive order that would roll back those

Obama-era policies, according to a

Bloomberg article.

—ERIC LIDJI

Accrual accountingThe profit that BP reported for its

Alaska operations in 2016 is an account-

ing figure based on accrued income and

costs, and not on cash flow. As reported

previously in Petroleum News, Janet

Weiss, BP’s Alaska president, has com-

mented that BP was running a daily cash

flow deficit of $1.5 million in 2016.

Weiss said that she expects a positive

cash flow in Alaska in 2017. That cash

flow represents money flowing in and out

of BP’s Alaska operations, including cap-

ital funding, which is not included in the

SEC accounts.

And the Alaska specific accounting

figures in BP’s annual report only apply

to BP Exploration (Alaska) Inc., the com-

pany that operates BP’s interests in North

Slope oil fields. Unlike the cash flow

data, the SEC figures do not include data

for BP’s affiliate that operates the compa-

ny’s oil transmission pipelines, in partic-

ular the company’s interests in the trans-

Alaska pipeline. Nor does the Alaska-

specific SEC data include financials for

BP’s marine transportation subsidiary

that ships the company’s North Slope oil

from Valdez, nor the BP subsidiary that

has been involved with other North Slope

oil producers and the state in the Alaska

liquefied natural gas project.

BP’s annual report indicates that the

refining marker margin for gasoline and

diesel production in the U.S. northwest

relative to the market price of North

Slope crude oil dropped in 2016 relative

to 2015, returning to around the margin

calculated for 2014. The report character-

izes overall refining margins in BP’s

businesses as being relatively weak.

However, the refining margin for the U.S.

northwest was higher than corresponding

margins elsewhere in the world, the

report indicates. The refining marker

margin indicates the general difference in

price between refinery feedstock and

refinery products.

Alaska operationsThe report says that BP’s focus in

Alaska continues to be on ensuring safe

and reliable operations while renewing

Alaska’s North Slope infrastructure and

minimizing oil production decline. The

company is using drilling programs, and

rig and non-rig well workovers to manage

production decline, the report says.

Infrastructure renewal in 2016 included

compressor replacements; fire and gas

system upgrades; safety system upgrades;

pipeline renewal; and facility siting proj-

ects. BP’s net Alaska oil production aver-

aged at 107,900 barrels of oil per day, the

report says.

The report also comments that in

January 2017 BP signed a cooperation

agreement with the state of Alaska, com-

mitting BP to help the state’s efforts in

pursuing a project to export natural gas

from the North Slope as liquefied natural

gas. In late 2016 BP and other major oil

companies operating on the North Slope

agreed to transition the LNG project to

the state, having determined that the proj-

ect that the companies had been pursuing

with the state was not competitive in the

LNG market — the state will progress the

permitting of the project and “identify

commercial structure alternatives that

deliver a competitive cost of (LNG) sup-

ply,” the report says.

—ALAN BAILEY

continued from page 1

BP ALASKA PROFIT

continued from page 1

OCS BILL EXPLORATION & PRODUCTIONUS drilling rig count increases 15 to 839

The number of rigs drilling for oil and natural

gas in the U.S. increased by 15 the week ending

April 7 to 839.

A year ago, 443 rigs were active.

Houston oilfield services company Baker

Hughes Inc. said 672 rigs were targeting oil (up 10

from the previous week) and 165 targeting natural

gas (up five). Two were listed as miscellaneous.

Texas increased by seven rigs, Oklahoma

gained four, Wyoming rose by two and Louisiana,

New Mexico and West Virginia each gained one.

Alaska lost one rig.

Arkansas, California, Colorado, Kansas, North Dakota, Ohio, Pennsylvania and

Utah were all unchanged.

The U.S. rig count peaked at 4,530 in 1981. It bottomed out last May at 404.

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Houston oilfield servicescompany Baker HughesInc. said 672 rigs were

targeting oil (up 10 fromthe previous week) and

165 targeting natural gas(up five). Two were listed

as miscellaneous.

percent compared to the current 35 percent),

so the effective and nominal tax rate are the

same, with value of carried forward losses

at the same rate as the tax rate.

The 25 percent net tax raises taxes in the

$50-$90 per barrel price range, Alper said,

with the Finance CS comparable to the orig-

inal version of Senate Bill 21 as proposed

by the Parnell administration in 2013.

Changes in FinanceAlper discussed major differences

between the Resource and Finance ver-

sions. The House Resources CS increased

the production tax floor to 4 percent at

prices below $25 and to 5 percent at prices

above $50. The Finance CS keeps the cur-

rent minimum tax of 1 percent above $15, 2

percent above $17.50, 3 percent above $20

and 4 percent above $25.

While the Resources CS prevented any

credits from being used below the mini-

mum tax the Finance CS allows use of the

small producer credit.

The Resources CS eliminated the 35 per-

cent net operating loss credit for the North

Slope and replaced it with a carry-forward

structure and allowed for 50 percent carry-

forward of losses with uplift of some 8.5

percent for seven years, while the Finance

CS allows for 100 percent of losses to carry

forward, but without uplift. The Finance CS

also decreases the carried forward value by

10 percent per year after seven years.

A point of significance in committee dis-

cussions, the Finance CS ringfences the

carry-forward expenditures by requiring

that they be used only to offset tax value

from the lease or property where they were

incurred.

The concern expressed in the committee

was that a company with large losses on an

expensive new development could use

those carried-forward net operating losses

to offset profits from a profitable producing

field elsewhere on the Slope or that a com-

pany might sell an asset, including carry-

forward losses, and the buyer could use

those losses to offset taxes elsewhere on the

Slope, without ever developing the field.

The Finance CS includes bracketing: the

tax rate is 25 percent up to a production tax

value (price less allowable costs and trans-

portation) of $60, a price of about $100,

Alper told legislators. When PTV reaches

$61, a surtax of 15 percent is charged, but

only for the portion of PTV greater than

$60.

Consultant’s viewsRich Ruggiero of Castle Gap Advisors

has been consulting with legislators on the

state’s oil and gas tax and credit system. He

has recommended simplifying the existing

system by using tax brackets. The Finance

CS makes use of this concept, bracketing

based on PTV. Asked if this wasn’t “ACES

all over again,” Ruggiero said it is a very

different form of progressivity than ACES,

the Alaska’s Clear and Equitable Share tax

regime from the Palin administration,

because the increase is only on dollars and

volumes above a certain amount.

The Finance CS deals with the growing

cashable credits issue, he said, but without

more time he said he couldn’t take a posi-

tion on whether the changes would result in

more oil down the pipeline.

On the reduction in value of NOLs after

seven years, Ruggiero said there are forces

outside a company’s control which impact

how quickly a project can get into produc-

tion, but said he is in favor of a cutoff

because it forces a company with a discov-

ery to move the project into development,

which is what the state wants.

Because the Finance CS allows for 100

percent recovery of costs it is more compet-

itive than the House CS, which only

allowed for 50 percent recovery of costs,

Ruggiero said. He raised the question of

when the state would require use of an

NOL. It has to be used when a company has

revenue, but in a year with both current

expenses and NOLs, will the state require

current expenses be used first? That, he

said, could roll out the NOL for long

enough to reduce its value.

The Finance CS ringfences use of

NOLs, and Ruggiero said ringfencing of

projects is fairly prevalent around the world

so it’s something companies already have to

deal with.

ReactionRuggiero said that at low profitability the

Finance CS raises taxes which will lower

producer take. Increasing taxes at lower

profitability probably will be viewed nega-

tively, but he said Alaska will still be attrac-

tive competitively because the tax system

would allow recovery of costs as fast as pro-

duction and the market will allow.

The Alaska Oil and Gas Association said

the Finance CS passed by the House would

hurt Alaska’s economy and characterized

the bill as a “fundamental re-write of the

state’s oil tax bill.” AOGA also said the

Finance Committee denied any opportunity

for public or industry testimony on the CS

and said the bill would “triple oil taxes at

low prices, similar to the old, failed ACES

tax system, which did the same at high oil

prices.” l

16 PETROLEUM NEWS • WEEK OF APRIL 16, 2017

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HB 111