ng new l exploration & production 1q drilling down

Wilkins: Hilcorp committed to Alaskainvestments; in state for long haul

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


l G O V E R N M E N T

Vol. 22, No. 21 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of May 21 2017 • $2.50

page8

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of May 21, 2017

Newmont readies to explore Yukon;targeting high-grade gold at Plateau

PEB

BLE

LIM

ITED

PA

RTN

ERSH

IP

Field work at Pebble, such as this drilling at the project in 2010, provided jobs to many residents near the world-class copper deposit. Successfully settling its dispute with EPA, the Pebble Partnership is now planning the firstfield program at Pebble in several years.

l E X P L O R A T I O N & D E V E L O P M E N T

NEWS NUGGETSCompiled by Shane Lasley

TESL

A I

NC

.

Coated spherical graphite is the primary anode material in mostrechargeable lithium-ion batteries that power electric vehicles, homeenergy storage units and other rechargeable electrical devices.

AIDEA finds potential sites forAlaska-based graphite refinery

Graphite One Resources Inc. May 17 said that it hasreceived a report from the Alaska Industrial Developmentand Export Authority that assess potential locations for afacility to refine graphite from its Graphite Creek deposit inwestern Alaska into advanced-materials such as coatedspherical graphite used as an anode in lithium-ion batteries.In its report, AIDEA identified Homer, Kenai, PortMackenzie and Seward as potential Alaska-based sites forthe graphite refinery. The report comes on the heels of amemorandum of understanding between AIDEA andGraphite One to explore opportunities to collaborate on thedevelopment of the Graphite One project. "TappingAIDEA's expertise in helping us assess potential refinerysites is the first step towards making Alaska a key player inthe clean-tech energy sector," said Graphite One CEOAnthony Huston. "The AIDEA report confirms the consider-able interest Alaska localities have in serving as a base forour advanced-material spherical graphite refinery." Homer,Kenai, Port Mackenzie and Seward are all SouthcentralAlaska locations with year-round ports with barge landings,docks, and container handling capacity. From these ports,refined graphite could be delivered to the Lower 48 states,generally via the ports of Seattle and Tacoma. These poten-tial sites also "have the capacity in-place to meet the refin-ery's power needs,” according to AIDEA. As for powercosts, the AIDEA report notes that "while Alaska can'tdirectly compete on power generation costs, there are poten-tial accumulated benefits to the location criteria that willhelp balance the overall capital and operating costs of theproject." Each potential site offers available industrial zonedland for the project. A number of property, sales, and otherspecial taxes on commercial and industrial activities withinthe municipal areas of the four locations, however, must betaken into consideration when evaluating the costs of operat-ing a graphite refinery at each. Graphite is a critical materialfor electric vehicle batteries and energy storage systems. TheU.S. is presently 100 percent import-reliant for graphite, acritical ingredient in the lithium-ion batteries that powerelectric vehicles and other electronic devices.

CopperBank funds Pyramid drillingCopperBank Resources Corp. May 12 reported the clos-ing of a C$1.4 million non-brokered private placement thatincluded the issuance of 17.5 million common shares at C8cents each. In April, CopperBank announced plans to carryout a roughly US$750,000 exploration program at Pyramid,a copper-molybdenum-gold project on Aleut Corporationlands on the Alaska Peninsula. The program, slated for mid-2017, is expected to include 1,500 meters of drilling. The

see NEWS NUGGETS page 8

Pebble door opensEPA agrees to lift pre-emptive restrictions, allowing normal permitting

By SHANE LASLEYMining News

After five long years of bat-tling inside and outside of

the courtroom, Pebble LimitedPartnership and the U.S.Environmental ProtectionAgency have negotiated anagreement that opens the doorfor the enormous Pebble cop-per-gold-molybdenum project in Southwest Alaskato enter the permitting process unencumbered by pre-determined restrictions.

“This settlement represents a major step for-ward for the Pebble project,” said PebblePartnership CEO Tom Collier. “It allows us to startadvancing Pebble to the next phase of develop-ment and provides us with the opportunity to initi-ate the normal permitting process for this project.”

A sentiment reflected by EPA AdministratorScott Pruitt.

“We are committed to due process and the ruleof law, and regulations that are 'regular',” said theformer Oklahoma attorney general. “The agree-ment will not guarantee or prejudge a particularoutcome, but will provide Pebble a fair process fortheir permit application and help steer EPA awayfrom costly and time-consuming litigation. We arecommitted to listening to all voices as this processunfolds.”

While this is an important milestone forNorthern Dynasty Ltd., currently the sole owner ofPebble, the outcome has implications well beyondone copper project in Alaska, or even the U.S. min-ing sector at large. Stopping EPA from usingSection 404 (c) of the Clean Water Act to ban orrestrict a project prior to permitting prevents aprecedent that could have significantly expandedthe environmental agency’s regulatory reach.

Time limitsWhile considered a major

victory for the PebblePartnership – a company thathas some US$750 millioninvested in the exploration,environmental studies, engi-neering and other work needto ready the world-class cop-per project for permitting –

the settlement with EPA involved give and takefrom both parties.

One of the major limitations for the PebblePartnership is time.

Under the terms of the settlement, the hopefulmine developer has 30 months to file permit appli-cations, which initiates the permitting processunder the National Environmental Policy Act, and48 months for a final environmental impact state-ment to be filed by the US Army Corps ofEngineers.

This time limit was included to ensure the set-tlement does not violate rules that would constrainthe authority of a federal cabinet officer.

Pebble leaders, however, do not see the timelimits as much of an impediment.

Both Collier and Northern Dynasty Presidentand CEO Ron Thiessen told Mining News thatthey expect to have permit application in by theend of 2017 and have a final environmental impactstatement from the U.S. Army Corps of Engineersby May, 2021.

As long as these two deadlines are met, the EPAhas agreed not to take any pre-emptive CWA 404(c) action against Pebble. If either deadline ismissed, however, the regulator has the option todust off and activate its previous decision.

Pebble has also agreed to withdraw its legal

TOM COLLIER RON THIESSEN

see PEBBLE AGREEMENT page 9

This week’s Mining News

EPA agrees to lift pre-emptive restrictions, allowing normal per-mitting for Pebble project. Read more in Mining News, page 7.

page3

1Q drilling downNorth Slope development drilling down sharply in first quarter of 2017

By ERIC LIDJIFor Petroleum News

North Slope development drilling dropped

sharply in the first quarter from a year earlier,

driven largely by the steep reduction in activities at

the Prudhoe Bay unit as well as the continued sus-

pension of development activities at the Oooguruk

and Nikaitchuq units.

BP, ConocoPhillips and Hilcorp, the three most

active of the seven producer-operators on the

North Slope, drilled 28 development wells in the

first three months of the year. Those figures repre-

sent the lowest first quarter development drilling

totals for the North Slope in at least five years —

down from 47 in 2016, 46 in 2015, 36 in 2014 and

32 in 2013.

The figures only include wells labeled “devel-

opment” in weekly well reports published by the

Alaska Oil and Gas Conservation Commission.

Some exploration wells are later converted to

development wells. Some development wells are

reported at a delay after completion. As a result,

revised totals could be higher but are unlikely to be

lower.

Prudhoe BayBP Exploration Alaska Inc. drilled just three

development wells at Prudhoe Bay in the first

quarter, the lowest first quarter activity in at least a

decade and probably longer.

By comparison, BP drilled 18 development

see 1Q DRILLING page 12

A major challengeState processing massive amounts of seismic data under exploration tax credits

By ALAN BAILEYPetroleum News

A deluge of seismic data has been hitting the

office of Alaska’s Division of Oil and Gas as

a consequence of exploration tax credits enacted in

2003 by the Alaska Legislature. The legislation,

designed both to encourage new oil and gas explo-

ration and to make seismic data available to com-

panies interested in exploring in the state, has

motivated exploration efforts. But, as the number

of surveys conducted under the terms of the credits

has peaked, and as the volume of data obtained

from each survey has escalated, division staff have

had to deal with the challenge of keeping ahead of

the resulting unanticipated data flood.

“This is a challenge on many different levels,”

Mark Wiggin, deputy commissioner of the Alaska

Department of Natural Resources, told Petroleum

News. “It’s literally a wave front of … ever

increasing datasets coming in the door.”

The complete process for a single surveytakes up to a year to complete, a similar

timeframe to that required for theDepartment of Revenue to audit thesurvey financial data, Decker said.

see SEISMIC DATA page 16

Nikaitchuq North planEni proposes two extended reach wells from Spy Island starting next winter


Eni US Operating Co. has filed a plan of opera-

tions amendment with Alaska’s Division of

Oil and Gas proposing the drilling of two extended

reach exploration wells from Spy Island into the

Nikaitchuq North prospect, in the federal outer

continental shelf of the Beaufort Sea. The prospect

lies immediately north of the operating Nikaitchuq

field, which is in state waters of the Beaufort. The

drilling would take place from an existing

Nikaitchuq field pad on Spy Island, a man-made

gravel island about three miles off Oliktok Point.

The surface locations of the two wells, the

NN01 and NN02 wells, would be adjacent the

existing row of production wells on the Spy Island

drill site, Eni’s plan amendment says. Two strings

of conductor pipe, well houses and new well con-

tainment structures will be needed for the wells,

with the wells being drilled along S-shaped trajec-

tories into the target rocks. Eni plans to drill the

wells to vertical depths of 8,000 feet in federal

blocks OCSY-1757 block 6423 and OCS-Y-1754

block 6374. The extreme extended reach of the

The extreme extended reach of the wellswill result in measured depths of about

34,000 feet, the plan says.

see NIKAITCHUQ NORTH page 15

HB 111 rolls to special sessionThe Alaska Legislature gaveled out May 17 without pass-

ing capital or operating budgets, a fiscal plan or House Bill

111, the oil tax and credit bill.

Those items are among those listed on Gov. Bill Walker’s

call for a special session beginning May 18.

HB 111 originated in the House Resources Committee and

a House Finance Committee substitute for the bill passed the

House April 11.

Icewine reaches target depthThe Icewine No. 2 well has reached its target depth.

Drilling crews working on the onshore North Slope explo-

ration well reached a total depth of 11,450 feet on May 15,

according to a May 17 announcement from 88 Energy Ltd.

Through its operating subsidiary Accumulate Energy

Alaska Inc., the Australian independent is now completing

wireline logging, cementing the production liner and demobi-

lizing the Arctic Fox drilling rig, in preparation for flow test-

Commissioners win confirmationGov. Bill Walker’s industry-related appointments all won con-

firmation when the Alaska Legislature met in joint session May

16, day 120 of the constitutionally mandated 121-day

Legislature, but well beyond the 90-day session imposed by voter

mandate in 2006.

The governor had called legislators into joint session in late

April for confirmation votes but there was an immediate move to

adjourn, with Republicans in the House minority and Senate

see HB 111 page 14

see ICEWINE WELL page 14

see CONFIRMATION page 12

https://www.petroleumnews.com

https://www.miningnewsnorth.com

2 PETROLEUM NEWS • WEEK OF MAY 21, 2017

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

ENVIRONMENT & SAFETY

EXPLORATION & PRODUCTION

6 Kenai Loop compression pushed to 2018

AIX believes Cook Inlet gas field can hold out anotheryear; touts major reduction in water handling costs; eyes other upgrades

1Q drilling downANS development drilling down sharply in first quarter of 2017

A major challengeVast amounts of seismic data processed under tax credits

Nikaitchuq North planEni proposes 2 extended reach wells starting next winter

ON THE COVER

HB 111 rolls to special sessionIcewine reaches target depthCommissioners win confirmation

11 DEC acts on Fairbanks air quality

13 Senate upholds methane leak regulations

GOVERNMENT

13 CBP withdraws new Jones Act proposal

11 State OKs changes to Alpine PA

11 Alpine annual turnaround set for mid-June

13 GAO recommends improved BLM data management

PIPELINES & DOWNSTREAM

FINANCE & ECONOMY

LAND & LEASING

5 EIA: US ’18 production at 10 million bpd

6 AOGCC lists topics for idle wells workshop

2 Repsol adds more interest at Pikka

3 Hilcorp committed to Alaska investments

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

Repsol adds more interest at PikkaAcquires 25-49 percent interest in 122 Armstrong leases; Alliance adds acreage at Hemi Springs; Anadarko drops Foothills leases


Armstrong Energy LLC has transferred sizable work-

ing and royalty interests in a large package of North

Slope leases to its longtime exploration partner Repsol

E&P USA Inc.

In a series of decisions dated April 5, the state

Division of Oil and Gas approved the assignment of

working and royalty interest for approximately 122 leas-

es in the North Slope and Beaufort Sea regions. Among

the acreage under consideration were 22 leases at the

Pikka unit, where the two companies have made big dis-

coveries in recent years.

Through the series of transactions, Armstrong trans-

ferred 25 percent working interest and either 20.83333 or

21.875 percent royalty interest in 79 leases, and also

transferred 49 percent working interest and either

40.83333 or 42.875 percent royalty interest in 43 leases

to Repsol. The assignments were approved retroactive to

the start of the year.

The assignments appear to cover leases where

Armstrong held 100 percent working interest, which

means that the company will retain a majority stake in

those leases.

Not included in the package of leases were ADL

392048 or ADL 392049, where Armstrong drilled the

Horseshoe No. 1 well and No. 1A sidetrack earlier this

year.

Under the original terms of their partnership,

Armstrong held a 45 percent interest in exploration

acreage and a 30 percent interest in the development

acreage. Following a restructuring in late 2015,

Armstrong assumed a 75 percent interest and operator-

ship in the exploration acreage and a 45 percent interest

in the development acreage with an option to acquire

another 6 percent and operatorship — an option the com-

pany took.

Hemi Springs Also in April, the state approved a series of deals

between Daniel K. Donkel, Samuel H. Cade and

Alliance Exploration LLC involving a package of North

Slope leases.

Through the deals, Donkel transferred 100 percent

working interest and 81.83333 percent royalty interest in

12 leases to Alliance Exploration. Those leases are ADL

391750, ADL 391757, ADL 391758, ADL 391759, ADL

391766, ADL 391767, ADL 391768, ADL 391774, ADL

391775, ADL 391776, ADL 391777 and ADL 391778. In

turn, Alliance Exploration transferred a 1.5 percent roy-

alty interest in the leases back to Donkel.

Donkel also transferred 25 percent working interest

and 20.45833 percent royalty interest in four other leases

to Alliance Exploration. Those leases are ADL 391544,

ADL 391545, ADL 392104 and ADL 392109. Cade

transferred to remaining 25 percent working interest and

61.375 percent royalty interest in those same four leases

to Alliance Exploration. In turn, Alliance Exploration

transferred 0.375 percent royalty interest in the leases

back to Donkel and 1.125 percent royalty interest in the

leases back to Cade.

The leases are part of the Hemi Springs prospect,

immediately south of the Prudhoe Bay Unit. Pioneer

Natural Resources drilled the Hailstorm No. 1 well on

ADL 391757.

Alliance already holds at least five leases adjacent to

the newly acquired block.

Alliance Exploration LLC was officially formed in

November 2016, according to Alaska corporations’

Anadarko Petroleum Corp. surrendered eightleases in the foothills of the Brooks Range

Mountains.

see REPSOL INTEREST page 4

https://www.gdiving.com

PETROLEUM NEWS • WEEK OF MAY 21, 2017 3

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Hilcorp committed to Alaska investmentsWilkins says his company is operating in the state for the long haul; planning several new development projects


In a talk to the Resource Development Council on May

4 David Wilkins, Hilcorp Alaska senior vice president,

emphasized the significance of Hilcorp’s Alaska invest-

ments to his company.

“Overall, Alaska is important to Hilcorp,” Wilkins

said. “We’ve invested quite a bit of

money. We believe it’s a good place

for Hilcorp to invest money.”

Hilcorp entered the Cook Inlet oil

and gas industry in 2011 and

embarked on a program of rejuve-

nating the aging oil and gas fields of

the region. In 2014 the company

expanded its Alaska operations by

purchasing some North Slope oil

field assets from BP.

Wilkins said that since coming to

the state Hilcorp has paid $1.8 billion for its Alaska

assets, has injected $1.3 billion into new projects for driv-

ing up oil and gas production, and spent $1.4 billion on

the operation and maintenance of its various facilities.

“This is not a strategy to come and leave. We’re here

for decades to come,” Wilkins said.

Asked about the potential impact to Hilcorp’s opera-

tions of any changes to Alaska’s oil and gas production

tax system, Wilkins said that tax increases could delay

future oil and gas production.

“What increased taxes will do to us is we’ll reduce

capital projects,” Wilkins said. “We will cut drill wells

from the budget.”

However, Wilkins said that he appreciates the difficult

situation that the legislators in Juneau find themselves in.

“But, from Hilcorp’s perspective, if we leave the rules

the same, I think we go forward. I think we increase pro-

duction. I think we drill more,” Wilkins said.

Rejuvenating old fieldsWilkins recounted that prior to Hilcorp’s arrival in

Alaska, there had been looming natural gas shortages in

Southcentral Alaska, with the Cook Inlet producers

preparing to leave the region.

“We came up with a business model that said let’s

come to Alaska and invest in an old tired, basin and reju-

venate it,” Wilkins said.

In the years since then there have been no gas supply

interruptions in Southcentral; gas supply agreements

with utilities have been moving from very short-term

contracts to agreements covering timeframes well into

the next decade; and long-term planning between

Hilcorp and he utilities has become possible, Wilkins

said.

This success has resulted from Hilcorp’s investments

in Alaska, he said.

“After this year we will have drilled in Alaska over

100 wells, and we’re not stopping,” he said. “I’m proud

to tell you that we currently have four drilling rigs run-

ning in Alaska and we are the most active driller in

Alaska at this time.”

Given that the company had drilled sufficient wells in

the Cook Inlet basin to support the current gas market in

the region, Hilcorp slowed its rate of drilling during the

last couple of years. However, this year the company has

increased its Alaska spend, increasing its drilling rate on

the North Slope and offshore in the Cook Inlet.

“We plan on drilling 40 wells this year,” Wilkins said.

In addition to drilling wells, Hilcorp has increased its

investment in upgrading the old infrastructure that it

owns, to ensure that the company’s pipelines, platforms

and wells can continue to perform effectively for a long

time into the future, he said.

North Slope projectsOn the North Slope Hilcorp has started construction

on the Moose Pad, on the western side of the Milne Point

unit. Drilling should start next year. With, eventually, 70

production and injection wells drilled into the Schrader

Bluff and Kuparuk formations, ultimate recovery from

the project will be 30 million to 50 million barrels of oil,

with first production by the fourth quarter of 2018 and

peak production rates of 12,000 to 18,000 barrels of oil

per day, Wilkins said.

This year’s construction season at Moose Pad has

been successfully completed and pre-ordering is under-

way for next winter’s season. Construction during the

coming season will involve the completion of the access

road, work on the pad and the start of facility construc-

tion. For the drilling, Hilcorp will bring in a brand new

drilling rig, which is already located on the North Slope,

Wilkins said.

Hilcorp is also planning to develop the Liberty oil

field, offshore under the Beaufort Sea, and sees the field

coming on line in five years or so, with peak production

of some 70,000 barrels per day and a 20- to 30-year field

life. The total development cost would be more than $1

billion.

“We’re full go in our mind,” Wilkins said.

Hilcorp expects to move forward with Liberty after

the completion of the project’s environmental impact

statement, which should be issued in mid-summer.

Pipeline leakReflecting on recent news about Hilcorp’s gas

pipeline leak in the Cook Inlet and questions over the

condition of the company’s Cook Inlet infrastructure,

Wilkins said that his company is passionate about the

integrity of its systems and about its management philos-

ophy.

“We have a very robust integrity and management

program on all our facilities and all our lines,” Wilkins

DAVID WILKINS

see HILCORP INVESTMENTS page 4

https://www.aoga.org

https://www.bp.com/alaska

said. “We go above and beyond what is

required from the regulators.”

He said that, although a full investiga-

tion is underway, looking into the cause

of the gas leak, it appears that the leak

resulted from the gas line rubbing

against a rock on the seafloor, with the

rock wearing a hole in line.

Wilkins said that Hilcorp is looking to

the use of new technologies for its facil-

ity inspection programs. The company is

planning to use drones, starting next

year, for annual inspections of its off-

shore platforms for mechanical and

structural integrity. The drones will

enable the gathering of data more quick-

ly and safely, without the need to have

people descending using ropes, as at

present, to inspect the platform exteriors.

Hilcorp is already using inertial map-

ping, a technology that uses a precise

gyroscopic navigation system, to detect

small pipeline movements, to rapidly

obtain pipeline data. The company also

uses inline inspection tools, known a

smart pigs, to monitor the condition of

pipelines — these devices are often cus-

tom made. The company plans to expand

its use of multi-beam sonar, a technology

that enables the external inspection of

pipelines in the murky waters of the

Cook Inlet, where divers experience dif-

ficulties in conducting visual inspec-

tions.

Hilcorp also uses a risk-based safety

program in its operations, applying

money, time and effort to safety issues

that need to be addressed, Wilkins said.

For example, in the Cook Inlet region the

company is upgrading the fire and gas

systems on its aging infrastructure, he

said.

Cook Inlet oil transportationAs reported in the May 14 issue of

Petroleum News, Wilkins also

announced a plan to transport crude oil

direct to the Tesoro oil refinery by

pipeline from oil fields on the west side

of the inlet. The idea is to eliminate the

use of the Drift River terminal on the

west side of the inlet, the oil terminal

that is used to load tankers for the ship-

ment of oil to the Tesoro refinery.

The $75 million project would

involve converting one of the twin

pipelines of the existing Cook Inlet Gas

Gathering System for the carriage of oil

and building a new subsea gas pipeline

across the northern part of the inlet from

the Tyonek platform to Ladd Landing,

north of Tyonek.

For a number of years the Drift River

terminal has been a cause of concern

because of its proximity to the Redoubt

volcano. In 2009 an eruption of the vol-

cano forced an evacuation of the termi-

nal and an emergency drawdown of oil

stored at the terminal site.

Long-term commitmentWilkins commented that Hilcorp’s

new pipeline proposal demonstrates his

company’s long-term commitment to

Cook Inlet.

“We see much more development in

the Cook Inlet. Many more drill wells.

And we see decades worth of production

in the Cook Inlet and we’re going to re-

invest in the Cook Inlet,” Wilkins said.

Citing the Swanson River oil field on

the Kenai Peninsula as an illustration of

how the life of an aging field can be pro-

longed, Wilkins commented that after 60

years in operation this field is still deliv-

ering more than 2,000 barrels per day of

oil. Hilcorp is still drilling in the field

and the company estimates there are

more than 7 million barrels of recover-

able oil remaining to be produced. With

the use of new technology, the field

could continue operating into the next

century, Wilkins said. l


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records. The company is a wholly owned

subsidiary of the Linger Trust.

AnadarkoAnadarko Petroleum Corp. surren-

dered eight leases in the foothills of the

Brooks Range Mountains. The leases —

ADL 392375, ADL 392376, ADL

392377, ADL 392378, ADL 392379,

ADL 392380, ADL 392381 and ADL

392382 — were located in a bundle along

the Kuparuk River unit, near the E.

Kuparuk Unit No. 1 and Kuparuk Unit

No. 1 wells.

For a time starting in 1998, Anadarko

was the largest leaseholder in Alaska,

with some 3.3 million acres in its portfo-

lio. But the company has been relinquish-

ing leases throughout the region for sev-

eral years, following a pioneering gas

exploration program.

Other news•The state is currently considering 15

separate transactions involving four work-

ing interest owners in five leases at the

offshore Kitchen Lights unit. Lee Higgins

& Terrie L. Stull-Higgins and Paul W &

Lori A. Lokke have asked to transfer a

0.25 percent royalty interest in five leases

to Proak LLC, and Proak Royalties L has

asked to transfer a 2.656248 percent roy-

alty interest in the leases to Northern

Lights Royalties LP. The leases are ADL

389927, ADL 389928, ADL 389929, ADL

390374 and ADL 390381.

•A lease in the Foothills region held by

Dan Donkel — ADL 391035 — expired.

•Hilcorp Alaska LLC surrendered lease

ADL 392240. The offshore Cook Inlet

lease was adjacent to the North Trading

Bay unit and was set to expire at the end

of May 2023. l

—A copyrighted oil and gas lease mapfrom Mapmakers Alaska was a researchtool used in preparing this story.

continued from page 2

REPSOL INTEREST


HILCORP INVESTMENTS

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By KRISTEN NELSONPetroleum News

The average for North Sea Brent

crude oil spot prices was $52 per

barrel in April, up $1 per barrel from

March, the U.S. Energy Information

Administration said May 9 in its monthly

Short-Term Energy Outlook. EIA said

April was the fifth consecutive month

that Brent averaged between $50 and $55

per barrel. The agency forecasts Brent to

average $53 per barrel this year and $57

in 2018, with West Texas Intermediate

crude forecast to average $2 per barrel

less than Brent in both years.

Crude oil prices rose in the first half of

April, but fell during the second half and

on May 4 reached the lowest point since

the end of November, EIA said. The April

3 to May 4 decline for Brent front-month

futures was $4.74 per barrel, to $48.38,

while WTI was down $4.72 per barrel to

$45.52. The April spot price average was

still 72 cents above March for Brent and

$1.73 per barrel above March for WTI.

“Upside support for crude oil prices

resulting from voluntary production cuts

or unplanned outages over the past

months has been countered by rising

crude oil production in Libya and in the

United States,” EIA said. At the begin-

ning of May, Libya said its crude oil pro-

duction had increased to the highest level

since late 2014, and U.S. crude oil pro-

duction was estimated to have reached

9.1 million barrels per day in April, “the

highest level since March 2016,” EIA

said.

Lower price forecastThe agency said it is projecting more

supply growth in the global crude oil

market this year and next, “resulting in a

lower forecast of crude oil prices in the

coming months.”

The agency’s current 2017 forecast for

Brent of $53 per barrel is down $1 per

barrel from its April forecast; the 2018

forecast remains the same at $57 per bar-

rel.

“Higher oil production from the

United States, along with rising oil output

from Canada and Brazil, is expected to

curb upward pressure on global oil prices

through the end of 2018,” Acting EIA

Administrator Howard Gruenspecht said

in a statement.

In the U.S. the number of drilling rigs

targeting oil reached a two-year high at

the beginning of May.

“Increased drilling rig activity is

expected to boost U.S. crude oil produc-

tion this year and next, with forecast pro-

duction in 2018 averaging 10 million bar-

rels per day,” Gruenspecht said.

There is a lag between deployment of

drilling rig and oil production, EIA said,

with recent rig increases indicating that

U.S. production “will likely rise further in

the coming months.”

Extension possibleEIA said that reports from the Joint

Organization of the Petroleum Exporting

Countries and the non-OPEC Ministerial

Monitoring Committee suggested com-

pliance with production cuts remained

high in March and said because global oil

inventories remain high, “oil ministers of

several OPEC countries, including those

of Saudi Arabia, Kuwait, and Iraq, have

suggested their respective countries

would support an extension of the crude

oil production cut agreement for six

months beyond the current end date in

June.”

The agency said the combination of

expectations of supply growth this year,

plus concerns that a proposed extension

of the production cut agreement will not

reduce inventories as quickly as expected

both contributed to the sharp drop in

crude oil prices in the first week of May.

More global oil supply growth is

expected compared to April, EIA said,

and this results in a lower forecast of oil

prices for the coming months. Current

growth projections are higher by some

200,000 bpd this year and by 100,000 bpd

in 2018, with expected liquid fuels con-

sumption growth largely unchanged. EIA

is projecting liquids fuel supplies to grow

by an estimated 1.4 million bpd this year

and 1.9 million bpd in 2018, compared to

growth in consumption of 1.6 million bpd

this year and next.

Natural gasThe Henry Hub price for natural gas

averaged $3.10 per million Btu in April,

up 22 cents from March, EIA said, with

U.S. dry natural gas production forecast

to average 74.1 billion cubic feet per day

this year, up 1.8 bcf per day from 2016.

“This increase reverses a 2016 production

decline, which was the first annual

decline since 2015,” the agency said.

U.S. natural gas production is forecast

to be 3.2 bcf per day more in 2018 than

this year.

EIA said Henry Hub is expected to

average $3.43 per million Btu next year,

up from an expected $3.17 this year, with

the increase due to new natural gas export

capabilities and growing domestic con-

sumption.

Natural gas storage injections aver-

aged 51 bcf per week in the four weeks

ending April 28, almost 10 bcf per week

more than the five-year average for those

weeks.

“With natural gas production returning

to growth in recent months after declining

in 2016, higher natural gas exports have

helped moderate inventory builds this

year,” EIA said. l

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

EIA: US ’18 production at 10 million bpdOverall higher production expected to curb oil prices this year, next; North Sea Brent spot averaged $52 in April, up $1 from March


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AIX Energy Inc. is considering a range

of facility upgrades at the Kenai Loop

field.

The Texas-based independent is not

planning to drill any new wells at the

onshore Cook Inlet natural gas field over the

coming year. But the company is continuing

to evaluate several infrastructure projects,

including an upgrade to compression sys-

tems, a plan to revive a currently dormant

production well and a plan to decommission

an existing pad.

Average daily gas production at Kenai

Loop appears to have peaked at approxi-

mately 11.5 million cubic feet per day in the

first quarter of 2016, a little more than four

years after startup. The field produced 3.159

billion cubic feet in the year ending March

31, down from 3.657 billion cubic feet dur-

ing the previous year. Condensate produc-

tion also declined to 507 barrels in the year

ending March 31 from 649 barrels the pre-

vious year.

A drop in daily production earlier this

year appears to be related to the unpre-

dictability of two non-firm contracts — one

with Tesoro and the other with an un-named

customer.

A firm contract with Tesoro and a larger

firm contract with Enstar Natural Gas Co.

will both expire later this year. “AIX has

multiple contracts which are likely to lead to

additional non-firm sales in 2017. AIX is

also pursuing additional firm commitments

beyond the termination of the Tesoro and

Enstar contracts in 2018,” according to

AIX.

The company described its current strat-

egy as an attempt to “to maximize field

recovery and net present value by aligning

production capacity with commercial

opportunities.”

Future drilling plans unclearWhether that strategy will call for

drilling in 2018 or beyond is unclear.

In its nearly five years as the operator of

Kenai Loop, predecessor Buccaneer Energy

Ltd. drilled four wells. The KL 1-1 and KL

1-3 wells are currently in production. AIX is

considering plans to convert the temporarily

suspended KL 1-2 production well into a

disposal well. The shut-in KL 1-4 produc-

tion well is not currently tied into the sys-

tem.

Earlier this year, AIX hired a geophysi-

cal/petrophysical team “to evaluate addi-

tional rate enhancing opportunities” at the

four Kenai Loop wells but is still reviewing

the results.

In its 2016 plan of development for

Kenai Loop, for the year ending March 31,

AIX proposed a range of facilities projects

to improve production and operations at the

field.

Among those was an attempt to address

water-handling costs, which represent the

second-highest lease operating expense at

the field after personnel, according to the

company. Last year, AIX negotiated a 29

percent decline in water-handling fees.


Kenai Loop compression pushed to 2018AIX believes Cook Inlet gas field can hold out another year; touts major reduction in water handling costs; eyes other upgrades


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Better.

Average daily gas production atKenai Loop appears to have

peaked at approximately 11.5million cubic feet per day in the

first quarter of 2016, a little morethan four years after startup.

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AOGCC liststopics for idlewells workshop

The Alaska Oil and Gas

Conservation Commission has a work-

shop scheduled for 10 a.m. June 17 at

its Anchorage office to discuss possible

changes in regulation of idle wells.

On May 17 the commission released

discussion topics for the workshop,

including.

•Should idle wells be treated more

like suspended wells with an applica-

tion for the well to remain shut-in and

periodic reports? If so, what should the

time parameters and frequency of the

reports be?

•Since there is a significant aban-

donment liability for idle and suspend-

ed wells, should the commission adopt

regulations in this area to better protect

the state and future operators?

•Considering the safety and environ-

mental risks of idle and suspended

wells, should the commission adopt

regulations for better protection?

•How long should the commission

allow a well to be idle before suspen-

sion or plugging is required?

—PETROLEUM NEWS

GOVERNMENT

see KENAI LOOP page 11

https://www.nabors.com

www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of May 21, 2017

Newmont readies to explore Yukon;targeting high-grade gold at Plateau

PEB

BLE

LIM

ITED

PA

RTN

ERSH

IP

Field work at Pebble, such as this drilling at the project in 2010, provided jobs to many residents near the world-class copper deposit. Successfully settling its dispute with EPA, the Pebble Partnership is now planning the firstfield program at Pebble in several years.

l E X P L O R A T I O N & D E V E L O P M E N T

NEWS NUGGETSCompiled by Shane Lasley

TESL

A I

NC

.

Coated spherical graphite is the primary anode material in mostrechargeable lithium-ion batteries that power electric vehicles, homeenergy storage units and other rechargeable electrical devices.

AIDEA finds potential sites forAlaska-based graphite refinery

Graphite One Resources Inc. May 17 said that it has

received a report from the Alaska Industrial Development

and Export Authority that assess potential locations for a

facility to refine graphite from its Graphite Creek deposit in

western Alaska into advanced-materials such as coated

spherical graphite used as an anode in lithium-ion batteries.

In its report, AIDEA identified Homer, Kenai, Port

Mackenzie and Seward as potential Alaska-based sites for

the graphite refinery. The report comes on the heels of a

memorandum of understanding between AIDEA and

Graphite One to explore opportunities to collaborate on the

development of the Graphite One project. "Tapping

AIDEA's expertise in helping us assess potential refinery

sites is the first step towards making Alaska a key player in

the clean-tech energy sector," said Graphite One CEO

Anthony Huston. "The AIDEA report confirms the consider-

able interest Alaska localities have in serving as a base for

our advanced-material spherical graphite refinery." Homer,

Kenai, Port Mackenzie and Seward are all Southcentral

Alaska locations with year-round ports with barge landings,

docks, and container handling capacity. From these ports,

refined graphite could be delivered to the Lower 48 states,

generally via the ports of Seattle and Tacoma. These poten-

tial sites also "have the capacity in-place to meet the refin-

ery's power needs,” according to AIDEA. As for power

costs, the AIDEA report notes that "while Alaska can't

directly compete on power generation costs, there are poten-

tial accumulated benefits to the location criteria that will

help balance the overall capital and operating costs of the

project." Each potential site offers available industrial zoned

land for the project. A number of property, sales, and other

special taxes on commercial and industrial activities within

the municipal areas of the four locations, however, must be

taken into consideration when evaluating the costs of operat-

ing a graphite refinery at each. Graphite is a critical material

for electric vehicle batteries and energy storage systems. The

U.S. is presently 100 percent import-reliant for graphite, a

critical ingredient in the lithium-ion batteries that power

electric vehicles and other electronic devices.

CopperBank funds Pyramid drillingCopperBank Resources Corp. May 12 reported the clos-

ing of a C$1.4 million non-brokered private placement that

included the issuance of 17.5 million common shares at C8

cents each. In April, CopperBank announced plans to carry

out a roughly US$750,000 exploration program at Pyramid,

a copper-molybdenum-gold project on Aleut Corporation

lands on the Alaska Peninsula. The program, slated for mid-

2017, is expected to include 1,500 meters of drilling. The

see NEWS NUGGETS page 8

Pebble door opensEPA agrees to lift pre-emptive restrictions, allowing normal permitting

By SHANE LASLEYMining News

After five long years of bat-

tling inside and outside of

the courtroom, Pebble Limited

Partnership and the U.S.

Environmental Protection

Agency have negotiated an

agreement that opens the door

for the enormous Pebble cop-

per-gold-molybdenum project in Southwest Alaska

to enter the permitting process unencumbered by pre-

determined restrictions.

“This settlement represents a major step for-

ward for the Pebble project,” said Pebble

Partnership CEO Tom Collier. “It allows us to start

advancing Pebble to the next phase of develop-

ment and provides us with the opportunity to initi-

ate the normal permitting process for this project.”

A sentiment reflected by EPA Administrator

Scott Pruitt.

“We are committed to due process and the rule

of law, and regulations that are 'regular',” said the

former Oklahoma attorney general. “The agree-

ment will not guarantee or prejudge a particular

outcome, but will provide Pebble a fair process for

their permit application and help steer EPA away

from costly and time-consuming litigation. We are

committed to listening to all voices as this process

unfolds.”

While this is an important milestone for

Northern Dynasty Ltd., currently the sole owner of

Pebble, the outcome has implications well beyond

one copper project in Alaska, or even the U.S. min-

ing sector at large. Stopping EPA from using

Section 404 (c) of the Clean Water Act to ban or

restrict a project prior to permitting prevents a

precedent that could have significantly expanded

the environmental agency’s regulatory reach.

Time limitsWhile considered a major

victory for the Pebble

Partnership – a company that

has some US$750 million

invested in the exploration,

environmental studies, engi-

neering and other work need

to ready the world-class cop-

per project for permitting –

the settlement with EPA involved give and take

from both parties.

One of the major limitations for the Pebble

Partnership is time.

Under the terms of the settlement, the hopeful

mine developer has 30 months to file permit appli-

cations, which initiates the permitting process

under the National Environmental Policy Act, and

48 months for a final environmental impact state-

ment to be filed by the US Army Corps of

Engineers.

This time limit was included to ensure the set-

tlement does not violate rules that would constrain

the authority of a federal cabinet officer.

Pebble leaders, however, do not see the time

limits as much of an impediment.

Both Collier and Northern Dynasty President

and CEO Ron Thiessen told Mining News that

they expect to have permit application in by the

end of 2017 and have a final environmental impact

statement from the U.S. Army Corps of Engineers

by May, 2021.

As long as these two deadlines are met, the EPA

has agreed not to take any pre-emptive CWA 404

(c) action against Pebble. If either deadline is

missed, however, the regulator has the option to

dust off and activate its previous decision.

Pebble has also agreed to withdraw its legal

TOM COLLIER RON THIESSEN

see PEBBLE AGREEMENT page 9


8NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF MAY 21, 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 • [email protected]

CIRCULATION • 907.522.9469 [email protected]

ADVERTISING Susan Crane • [email protected]

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

Goldstrike, Newmont move toward PlateauGoldstrike Resources Ltd. May 15 announced that crews and equipment are

being mobilized to the Plateau gold property in central Yukon for the maiden

exploration campaign under partnership with Newmont Mining Corp. This pro-

gram will start off by outlining the full extent of numerous high-grade gold show-

ings at Plateau in prepara-

tion for drilling later in the

year. "This will prove to be

a defining season for the

Plateau property," said

Goldstrike Chief Geologist

James Moors. "Our recent

partnership with Newmont

allows us to advance to the

next stage of development

by committing the

resources and technical

expertise necessary to fur-

ther focus our efforts and

understand the nature of

the extensive new gold

system.” This effort will

begin with an intensive

geological mapping and

sampling to increase the resolution of information over a 60-square-kilometer (23

square miles) area and allow crews to vector into key areas with the strongest

potential for additional discoveries. The program will also involve the use of

Newmont’s proprietary geochemistry surveys, ground geophysics and detailed

geological mapping along the interpreted trend of showings will help define the

extent of mineralization both on surface and at depth. Property scale geophysics

and detailed surface modelling will refine understanding of the geology and struc-

tural framework that control the high-grade gold mineralized zones across the dis-

trict and identify key areas having strong potential to host additional gold mineral-

ization. In the final preparation for the most extensive drill program ever carried

out at Plateau, the partners will trench and sample the most promising of the gold

discoveries. Separately, Goldstrike is preparing for the largest exploration pro-

gram ever completed at its Lucky Strike property in Yukon’s White Gold District.

Colorado budgets C$4M to expand stake in KSPColorado Resources Ltd. May 11 said it has made a final cash payment of

C$150,000 and completed C$6 million of work at KSP, satisfying an agreement

with SnipGold Corp., a subsidiary of Seabridge Gold Inc., to earn an initial 51

percent interest in the northern British Columbia gold property, a stake it hopes to

increase to 80 percent by the end of the year. After completing a detailed review

of the 2016 exploration results in the context of updated geological, geochemical

and geophysical data, Colorado has budgeted C$4 million for a 2017 exploration

program at KSP that is expected to include roughly 7,500 meters of drilling that

will focus on areas to the west and north of the area drilled at the Inel target last

year. One hole drilled at Inel last year cut 52 meters averaging 4.93 grams per

metric ton gold and 2.7 percent zinc; including a two-meter intercept with 89.1 g/t

gold and 2.3 percent zinc. Colorado said that many of the 2016 holes drilled on

the margins of the areas being targeted this year ended in mineralization and are

overlain by very strong gold-in-soil anomalies. Slated to get underway in July, the

2017 exploration at KSP been designed to meet the spending requirements to earn

an additional 29 percent interest in the project. Once this earn-in requirement has

been met, Colorado and Seabridge will form an 80-20 joint venture at KSP.

l C O L U M N

Settlement putsPebble back in playThe renewed opportunity for development of a once sidelinedcopper mine in Southwest Alaska give us all hope for the future

By J. P. TANGEN Special to Mining News

L ast week the Pebble Project

announced that it had reached a set-

tlement with the EPA of pending litiga-

tion in conjunction with the agency’s pre-

vious determination to block the develop-

ment of the project. Essentially, the settle-

ment means that Pebble will be able to

resume the permit application process

with the hope of ultimately opening a

mine.

This good news, besides the obvious

possibility of a major mine going for-

ward in Southwest Alaska, is that it lets

us dream of a turnaround in the attitude

of the federal government with regard to

the development of domestic resource

projects, especially in Alaska.

It is fair to say that for too long the

regulatory agencies have forgotten how

to get to “yes” when it comes to dealing

with permit applications. There can be

no doubt that the EPA led the way in

ballooning its statutory authority to

envelope every effort on the part of the

private sector to do virtually anything.

The appointment of a new Administrator

may put the brakes on to some extent;

however, how long that will last and

what good it will do is still an open

question.

I am not at all sure that the EPA in

particular or the regulatory agencies in

general actually define their respective

mandates as an obligation to bring

domestic industry to its knees. On the

other hand, that is the track record.

Generally, it is called the Law of

Unintended Consequences. Under that

law “any action will have at least one

consequence not intended by its author.”

In science, it is the Chaos theory.

Under the Chaos theory, every time a

butterfly flaps its wings, the entire world

is changed ever so slightly. So too, in

our society, every time a bureaucrat taps

a keyboard to implement some bright

idea, the unintended and chaotic conse-

quences often change our lives randomly

and imperceptibly forever.

It is indisputable that Congress and

the progressive administrations of the

past several decades have given the fed-

eracracy ample fodder to flap its wings.

The impact on Alaska has been palpable,

but no more so than in the case of the

Pebble Project.

With Pebble, there is a known deposit

of significant size containing copper and

gold, as well as other commodities, that

are needed and in demand. The deposit

is located in a remote region where

unemployment is high, social services

are marginal and infrastructure is non-

existent. The impact of the environment

on a mine will not only be minimal, due

to Draconian oversight, but temporary,

because even the largest mines will be

exhausted over time.

The competing considerations include

a huge Seattle-based fishery and a local

culture oriented around a subsistence

lifestyle. These critics feel an undifferen-

tiated threat from Pebble; but, the region

is already calamity prone - witness the

local earthquakes, volcanoes and

extreme weather conditions. Any theo-

retical hazard that might befall the mine

would not pose an extraordinary jeop-

ardy.

Despite how we arrived at the point

where the Pebble Project and the EPA

have come to an understanding as to

how to proceed, at least through the per-

mit application process, the very fact of

that settlement should give us all com-

fort.

Alaska hosts tremendous reserves of

natural resources, many of which are

ripe for harvest. It is not uncommon for

them to die on the vine. From the

molybdenum deposit at Quartz Hill to

the Chuitna Coal project on the west side

of Cook Inlet, many mining opportuni-

ties have been defined and left for others

to develop.

In the short run, the flap of a butter-

fly’s wing in the District of Columbia

can affect all Alaskans adversely. In the

long run, it will not change either the

demand for our commodities or our tech-

nical ability to recover them.

It is heartening that the new

Administration has afforded the Pebble

Project the opportunity to proceed with

applying for permits for the project. We

cannot forget, however, that it took

developers of the Kensington Mine two

decades and a trip to the U. S. Supreme

Court to get that mine permitted. Pebble

is just being allowed to take an early

step down a very long road.

All that we can do now is extend our

congratulations, cross our fingers and

wish Pebble Godspeed. l

Mining & thelaw

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

company’s objective is to expand the

current resource at Pyramid in advance

of infill drilling planned for 2018.

Expansion of high-grade resources

around hole PY11-16, which cut 155

meters of 0.71 percent copper, 0.18

grams per metric ton gold and 0.018 per-

cent molybdenum, is the primary target

area for this year’s drilling. The bottom

34 meters of this hole returned 0.844

percent copper, indicating the depth

extension of this deposit. l


NEWS NUGGETS

GO

LDST

RIK

E R

ESO

UR

CES

LTD

.

Sampling of this quartz riddled outcrop at the newly dis-covered Big Bang zone on Goldstrike Resources’ Plateauproperty returned grades of 4.15 and 3.38 grams per met-ric ton gold.


action against EPA.

Being able to take Pebble into permit-

ting without limitations, however, was the

primary reason for the legal action.

"From the outset of this unfortunate

saga, we've asked for nothing more than

fairness and due process under the law --

the right to propose a development plan

for Pebble and have it assessed against the

robust environmental regulations and rig-

orous permitting requirements enforced in

Alaska and the United States," Thiessen

said. "Today's settlement gives us precise-

ly that, the same treatment every develop-

er and investor in a stable, first-world

country should expect."

Precedent avertedWhile of vital importance to the Pebble

Partnership, the lifting of EPA’s CWA 404

(c) restrictions on permits to develop

Pebble averted a precedent that had the

potential to change the way EPA assessed

project development in the United States.

In 2015, Collier informed the U.S.

House Science Committee that the Pebble

Partnership has uncovered documents

revealing that at least part of EPA’s over-

arching intent in pre-emptively stopping

the Pebble Mine is to set a precedent that

would allow the agency to decide where

industrial development could and could

not take place in the U.S.

“They want to be able to zone the

watersheds of America,” Collier summa-

rized.

EPA’s internal discussions seem to con-

firm this assertion.

In 2010, while tossing around the idea

of taking pre-emptive 404 (c) action

against Pebble, upper level EPA manage-

ment said that a successful pre-emptive

veto of the Pebble permits would “serve as

a model of proactive watershed planning”

in the United States and listed this asser-

tion in the pro column of a matrix evaluat-

ing the potential of taking a pro-active

stance at Pebble.

The settlement between the Pebble

Partnership and the EPA does not preclude

the environmental agency from attempt-

ing to extend its authority to pre-permit-

ting in the future. The fact that it’s attempt

to do so at Pebble was stopped short, how-

ever, prevents the precedent from being

set and lessens the odds of the agency pre-

vailing if it tried to veto a permit prior to

permitting in the future.

Collier, a 40-year Washington D.C.

insider who has worked alongside some of

the juggernauts of the modern environ-

mental movement, told Mining News that

he believes the level of backlash EPA has

received from lawmakers and others “will

discourage any administration from taking

this direction, forever.”

Major milestones aheadWith the settlement reached, precedent

averted and clock set, the Pebble

Partnership is wasting no time in achiev-

ing the next major milestones – bringing a

major mining company on board and sub-

mitting a mine plan for permitting.

Since any global mining company that

joins the Pebble Partnership would want

to be involved in the mine design, bring-

ing such a partner onboard tops this list of

priorities.

The Pebble Partnership and Northern

Dynasty CEOs see no lack of potential

suitors.

“As a world-class mineral deposit,

there remains significant interest in Pebble

among major mining companies. This set-

tlement removes a major stumbling block

to attracting new investment in the Pebble

project and in Alaska,” said Collier.

This world-class deposit hosts roughly

56.8 billion pounds copper, 70.4 million

ounces gold, 3.4 billion lb molybdenum

and 343.6 million oz silver in measured

and indicated resource, an attractive asset

in a world where new stores of copper and

gold are getting harder to find.

“When it comes to undeveloped assets,

Pebble is both the largest copper and

largest gold resource in the world,”

Thiessen explained.

“This is the kind of long life asset that

most major mining companies covet,” he

added.

Thiessen said Northern Dynasty is cur-

rently in advanced talks with a number of

mining companies and the new Pebble

partner may be a consortium of three or

four of them.

When asked if he anticipates that a new

Pebble partner will be in place and permits

will be submitted by the end of 2017,

without hesitation, Collier’s answer was

an emphatic “yes”.

Designing a mineWhile the coming Pebble partner(s)

will want to weigh in on the final design

presented for permitting, Northern

Dynasty has not been idle on this front.

Thiessen told Mining News that his

company has been working on the poten-

tial scenarios for a Pebble Mine and it is

likely that the mine to be presented for

permitting will be significantly smaller

than ideas that have been considered in the

past.

In 2011 Northern Dynasty published a

preliminary economic assessment that

considered a 220,000-metric-ton-per-day

operation at Pebble that would produce 31

billion lb of copper, 30 million oz of gold,

1.4 billion lb of molybdenum, 140 million

oz silver, 2.6 million lb of rhenium and

907,000 oz of palladium over a 45-year

mine-life.

While robust in its own right, this mine

plan only accounts for about 32 percent of

the overall resource found at Pebble.

Though capable of supporting a multi-

generational mine of world-class propor-

tions, the Pebble deposit comes to surface

and is high enough grade to be scalable.

“Pebble has a lot of scale but, more

importantly, it has a lot of optionality,”

Thiessen told Mining News.

Traditionally, Pebble has been consid-

ered two deposits – Pebble West, a lower

grade but comes right to the surface, mak-

ing it ideal for starting a low-cost open-pit

mine, and the higher grade Pebble East

deposit, which would likely be mined

from underground later on.

Pebble West has a higher grade core

that spans some 3,000 feet across that

would make the ideal place to start min-

ing.

“I think we get away with 10 to 12

years of mining with very little waste gen-

eration,” the Northern Dynasty CEO said.

While mining this easiest section of the

deposit, the Pebble Partnership can sink a

shaft to further evaluate Pebble East and

decide whether to underground mine this

higher grade ore body, which also pro-

duces little waste, or widen the open-pit at

Pebble West.

Collier said that the designs for the var-

ious mine, tailing storage, mill location,

supporting infrastructure, etc. have

already been completed and the exercise

of determining the best project to present

for permitting is akin to a smorgasbord –

selecting a combination of these various

scenarios that strikes the right balance of

economic viability, environmental stew-

ardship and public acceptability.

“The design work is not the challenge

for us, because we have all of the designs

rights there on the shelf,” the Pebble CEO

explained. “The issue for us is, among all

these options, which ones are we going to

choose.”

He told Mining News that the Pebble

Partnership has already substantially nar-

rowed down these options “and made

some decisions that are going to surprise

people because it is going to be so dramat-

ically different what people have been

expecting Pebble to look like when it

finally puts its plan on the table.”

Repositioning PebbleA newly formed advisory committee

will likely be the first at the table when the

mine plan is presented.

Consisting of strong personalities with

high integrity, many of which are skeptical

of any plans to develop a mine at Pebble,

this panel is going to be a tough audience.

Willie Hensley, a respected Alaska

Native leader; Kim Williams, former

executive director, Nunamta Aulukestai;

Jim Maddy, former president, League of

Conservation Voters; General Joseph

Ralston, former vice chairman, Joint

Chiefs of Staff; and Terrence ‘Rock’ Salt,

former deputy assistant secretary, Army

Corps of Engineers are the founding mem-

bers.

The Pebble Partnership welcomes the

critiques it anticipates from this panel.

The formation an advisory group is one

of the facets of a larger strategy to make

people living and working in the region

more comfortable with having a world-

class mine as a neighbor.

Providing tangible economic benefits

across the Bristol Bay region is another.

One such way to ensure the people

across this vast section of Southwest

Alaska benefit from development of a

mine is to set up some type of revenue

sharing for residents and Native village

corporations.

Other world-class deposits in Alaska,

such as the Red Dog zinc mine and Donlin

Gold mine project, are located on Native

owned lands. This is an advantage to the

local populations, who see tangible bene-

fits from the operation.

While Pebble, located on state lands,

would help to send badly needed money to

Alaska coffers and would be an extremely

significant economic contributor to the

Lake and Peninsula Borough, which cov-

ers the area where Pebble is located, the

larger Bristol Bay region does not current-

ly have a way to directly draw economic

benefits from the rich copper-gold-molyb-

denum-silver deposit.

Collier said the Pebble Partnership is

currently considering a program that

would extend revenue sharing to the larger

Bristol Bay region.

Providing contracting opportunities to

Native village and regional corporations

in the region and across Alaska is another

advantage a Pebble Mine could offer.

A key aspect to this is for the Pebble

Partnership to let these Alaska Native cor-

porations know what type of contracting

needs the mine will have and help ensure

that they are prepared to fill as many of

those needs as possible.

Collier said Pebble is planning to bring

in a mentor who can match Native corpo-

rations with specific contracting opportu-

nities at Pebble. This would be followed

up with training to ensure the groups have

a workforce ready to fill the roles when

the time comes.

Another major economic benefit the

mine could provide to Bristol Bay resi-

dents and fishermen is low-cost power.

Thiessen believes the power brought

into the region for a mine a Pebble could

cut the cost of power across the region by

as much as 80 percent, a substantial sav-

ings for Bristol Bay residents and fish

processors.

“I think there are going to be whole

series of things we are going to start talk-

ing about, now that we don’t have to talk

about EPA killing our project,” Collier

said. “And I think it is going to be a much

better and more interesting discussion for

us, the people of the region and the people

of Alaska.”

Boots on the groundWith the permitting door now open and

plans to enter that door by the end of the

year, the Pebble Partnership is gearing up

for a field program at the project.

“We will have boots on the ground, on

the site, doing some work, and that is the

first time in a number of years,” Collier

said.

Thiessen told Mining News that a rela-

tively modest program to collect the final

bits of data needed prior to applying for

permits is planned.

This is good news for area residents

who have worked at the Pebble project or

provided services to the Pebble camp in

the community of Iliamna in the past.

"We're very pleased the project is mov-

ing forward, and that we're in a position to

begin to re-hire local residents and Alaska

firms that have contributed so much to

Pebble's advancements in years past,"

Collier said. l

9NORTH OF 60 MINING

PETROLEUM NEWS • WEEK OF MAY 21, 2017

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PEBBLE AGREEMENT“This settlement removes a majorstumbling block to attracting newinvestment in the Pebble project

and in Alaska.” –Pebble Partnership President

and CEO Tom Collier


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A plan to install a gas compression sys-

tem at the field remains unresolved. In its

May 2016 plan of development, AIX said it

expected to install such a system within 12

to 18 months. But after updating internal

models based on “flowing and shut-in data,”

the company is now forecasting that the

compression system can wait until mid-

2018.

The questions to be resolved are the

same as last year: whether to purchase a sys-

tem or to lease it, and whether the system

should be gas-fired or electric-fired. The

proposal to revive the KL 1-4 well is part of

the larger question of planning a compres-

sion system.

In its current plan of development, AIX

also said it had decided in April 2017 not to

renew its land lease for the Kenai Loop Pad

No. 2 with the Alaska Mental Health Trust

Land Office and was “currently working

with TLO to evaluate the way forward.”

The lease expired at the end of 2016,

according to the Trust Land Office. As part

of those discussions with the Trust Land

Office, AIX will be required to decommis-

sion the pad. l


KENAI LOOP

ENVIRONMENT & SAFETYDEC acts on Fairbanks air quality

Following a new ruling by the Environmental Protection Agency, changing the

status of Fairbanks’ inability to fix its air quality problems from moderate to seri-

ous, the Alaska Department of Environmental Conservation has mandated meas-

ures to address air quality in the city.

The problem arises from the widespread usage of wood burning stoves for the

heating of homes in the Interior city, given the high cost of alternative methods of

heating. Thermal inversions during cold winter weather cause smoke from the

stoves to accumulate close to ground level, raising the concentration of smoke-

related particles in the air well above the levels at which health issues arise.

DEC is introducing two measures in response to the EPA ruling.

The first measure requires building owners selling, leasing or conveyancing

their properties within the area impacted by air quality problems to replace inef-

ficient wood-fired heating equipment with EPA-certified wood or pellet stoves.

The stove certification must meet current emission standards.

Secondly, DEC requires wood sellers in Fairbanks to register with the agency

and document the moisture content of the wood that they sell. The wood sellers

must provide information about the wood’s moisture content to their customers.

The burning of wet wood exacerbates the emission of smoke from wood stoves.

ADEC says that a water content in excess of 20 percent causes increased emis-

sions.

“These measures are designed to improve air quality and help bring the area

closer to compliance with current standards,” said Denise Koch, DEC director of

air quality. “Controlling particulate matter will benefit public health throughout

the Fairbanks North Star Borough community.”

—ALAN BAILEY

State OKs changesto Alpine PA

The state has approved a change to

the boundaries of the Alpine participat-

ing area at the Colville River unit to

accommodate drilling activities at the

new CD-5 pad.

In a decision dated May 9, Division

of Oil and Gas Director Chantal Walsh

allowed operator ConocoPhillips

Alaska Inc. to contract a portion at the

northeast corner of the Alpine partici-

pating area and expand the participat-

ing area along its western border.

The change essentially brings recent

CD-5 drilling into the participating area

boundaries.

The Alpine participating area is the

largest producing segment of the

Colville River unit and often referred to

as the “main Alpine field,” as opposed

to the Alpine satellites.

—ERIC LIDJI

LAND & LEASING

Alpine annualturnaround setfor mid-June

Alyeska Pipeline Service Co. per-

formed an 18-hour major mainte-

nance shutdown of the trans-Alaska

oil pipeline beginning 6 a.m. May 6,

the first shutdown of the year.

Various projects were scheduled,

including isolation of below-ground

piping at the Valdez Marine

Terminal; functionality confirmation

for newly installed control systems;

and routine maintenance.

Producers frequently take advan-

tage of the shutdowns for their own

maintenance projects.

ConocoPhillips Alaska spokes-

woman Natalie Lowman said neither

Alpine nor Kuparuk, both operated

by ConocoPhillips, had scheduled

maintenance during the May trans-

Alaska oil pipeline shutdown. She

E&P

see ALPINE TURNAROUND page 13


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with Petroleum News

majority Republicans carrying that motion.

The May 16 joint session was, as is the normal practice,

by agreement between the House and Senate. Some

appointments failed to win approval, but none of those were

oil and gas industry related.

All cabinet-level appointments were approved:

Department of Natural Resources Commissioner Andy

Mack was confirmed along with Attorney General Jahna

Lindemuth and Department of Public Safety Commissioner

Walt Monegan.

Three seats on the board of the Alaska Gasline

Development Corp. were up for approval — Warren

Christian of North Pole, Hugh Short of Girdwood and

David Wight of Anchorage — and all won approval with a

58 to 1 margin.

Dan Seamount, who holds the geologist seat on the

Alaska Oil and Gas Conservation Commission, won confir-

mation for his reappointment without objection.

The case was not the same for his fellow commissioner,

Hollis French, whose confirmation faced headwinds.

French was nominated for the public seat on the commis-

sion, and did win confirmation in a 35 to 24 vote, but only

after lengthy discussion following a call on the House

(requiring all members to be present) and failure, by a 29 to

30 vote, of a motion to table consideration of his name to

the last item of the day.

After that motion, House Majority Leader Chris Tuck,

D-Anchorage, questioned whether the move was intended

to leave some appointments hanging and said he wanted

French’s confirmation taken up immediately. The House

voted 17 for and 22 against tabling, with the Republican

minority all voting for tabling; in the Senate, where French,

a Democrat, formerly served, eight members voted to table

and 12 opposed, with some Republicans voting with the

minority Democrats against tabling.

In debate on French’s confirmation, Sen. Peter Micciche,

R-Soldotna, the Senate majority leader, said he had process

concerns, saying French had been a great senator, but that

he was concerned about French’s ability to work on what

Micciche characterized as a consensus board.

Sen. Anna MacKinnon, R-Anchorage, called French a

thoughtful man but said constituents had urged her to vote

no on his confirmation which spurred some investigation on

her part and raised issues, including whether French was

advocating for additional jurisdiction for the commission

over the loss of fuel gas in Cook Inlet due to a pipeline leak.

Sen. Tom Begich, D-Anchorage, argued that French

would represent the public fairly while Sen. Bill

Wielechowski, D-Anchorage, said the other AOGCC com-

missioners supported French in testimony and he hadn’t

heard that support had been withdrawn.

Rep. Geran Tarr, D-Anchorage, said House Resources

asked French about the waste issue and said she believed he

was acting in his role as a commissioner on a commission

charged to prevent resource waste.

—KRISTEN NELSON


CONFIRMATION

wells in the first quarter of 2016, 18 in the first quarter of

2015, nine in the first quarter of 2014 and 17 in the first

quarter of 2013.

The sharp reduction is not a total surprise, given that

the company had previously announced plans to signifi-

cantly reduce drilling at the largest oil field in the state.

Through various efficiencies, BP was able to maintain

relatively steady production at Prudhoe Bay in 2016,

despite fewer new wells. In a recent plan of development

for the Initial participating Areas — the largest produc-

ing segment at the unit — the company said it expected

to again reducing drilling rates this year without a major

hit to production.

Kuparuk and Colville ConocoPhillips Alaska Inc. also reduced drilling

activities at the Kuparuk River unit. But those losses

were mostly offset by an increase in drilling work at the

Colville River unit.

The company drilled 14 development wells at

Kuparuk during the first quarter of this year, down from

20 development wells in both 2016 and 2015 but up from

the 10 development wells the company drilled during the

first quarters of both 2014 and 2013.

A widespread campaign of multilateral drilling con-

tinues to be a major component of the development pro-

gram at the Kuparuk River unit. In the first quarter,

ConocoPhillips drilled a sidetrack and associated lateral

at 1H, a dual lateral well at 2T, a trilateral well at 3H and

a quad-lateral well at 3M, plus two single wells at 2M

and a single well at 3R.

The company also drilled nine development wells at

the Colville River unit during the first quarter, up from

four in 2016, two in 2015, one in 2014 and two in 2013.

The sharp increase reflects the impact of the initial

development program at the new CD-5 pad.

Milne PointHilcorp Alaska LLC slightly reduced drilling activity

at the Milne Point unit, although the results are largely a

quirk of the calendar. The company drilled two develop-

ment wells at the unit in the first quarter but completed

two more in the first week of April.

By comparison, the company drilled three develop-

ment wells at Milne Point in the first quarter of 2016 and


1Q DRILLING

see 1Q DRILLING page 14


said ConocoPhillips has “no significant

turnarounds planned at Kuparuk this sea-

son.”

The annual turnaround for Alpine is

schedule for mid-June.

As reported last week, BP has a sched-

uled turnaround later this summer, while

Hilcorp took advantage of the May shut-

down for some planned maintenance.

—KRISTEN NELSON


ALPINE TURNAROUND

GOVERNMENTGAO recommends improved BLM data management

The Government Accountability Office has recommended that the Bureau of

Land Management improve its management and tracking of data relating to the

environmental impacts of permitted oil and gas operations on federal lands. In a

newly published report GAO says that, although BLM has a process for approving

exceptions to environmental mitigation measures when issuing permits, procedures

for these approvals are inconsistent across the agency’s field offices and the agency

has no policy for consistently tracking exception requests. As a consequence, BLM

may be unable to provide reasonable assurance that it is meeting its environmental

responsibilities, GAO says.

Moreover, whereas BLM requires certain key practices in conjunction with per-

mitted activities, the agency does not consistently document the results of its inspec-

tions, conducted to ensure that these practices are carried out. The key practices

relate to issues such as standards for road construction, the use of secondary con-

tainment for protection against oil spills, and the reclamation of impacted land. In

the absence of detailed information about inspection results or the effective use of

data from inspections, BLM cannot fully assess the effectiveness of its best man-

agement practices policy, GAO says.

GAO has made a series of recommendations for BLM, including the develop-

ment of bureau-wide written procedures for making exception decisions during per-

mitting; the making of exception decisions public; and the clarification of guidance

for documenting the results of environmental inspections. Field offices also need

guidance on the collection and use of field inspection data, GAO says.

BLM has in general concurred with the GAO recommendations. However, the

agency has expressed concern over the possibility of public involvement in the per-

mit exception decision making process. Exception requests are available to the pub-

lic but public involvement in the exception process would require a formal rule

change, BLM says. The public can currently review and comment on documents

relating to exception requests, including land planning and National Environmental

Policy Act documents, the agency says.

—ALAN BAILEY

ENVIRONMENT & SAFETYSenate upholds methane leak regulations

On May 10 the U.S. Senate rejected a resolution that had been passed by the House

of Representatives that would have annulled regulations issued by the Obama admin-

istration for limiting methane emissions from oil and gas drilling operations. The

Department of the Interior published the regulations on Nov. 18, 2016, and on Jan. 30

Rep. Rob Bishop, R-Utah, introduced the resolution to cancel the new rule — Congress

can act to cancel a federal rule within 60 days of the rule being implemented.

There have been several resolutions passed by Congress undoing regulations intro-

duced near the end of the Obama administration, but the Senate voted against this latest

resolution by a vote of 51-49. All Democrat and independent senators voted against the

resolution, as did three Republicans: Lindsay Graham, John McCain and Susan

Collins.

The regulations that remain in force apply to federal onshore land administered by

the Bureau of Land Management. The regulations include criteria for when flared gas

may be considered waste and, thus, be subject to royalty payments, and which uses of

gas may make the gas exempt from royalties. The venting of gas is prohibited, except

under specific circumstances. Operators must use an instrument-based system for gas

leak detection. Old, leaky equipment must be replaced. And there are regulations per-

taining to the maintenance of pneumatic pumps; for limiting toxic emissions from gas

storage vessels; for minimizing gas losses associated with the handling of liquids; and

for the capture of gas during the completion of wells completion and when conducting

hydraulic fracturing.

The rule also clarifies the regulations for the setting of royalty rates for BLM oil and

gas leases.

—ALAN BAILEY

CBP withdraws new Jones Act proposalU.S. Customs and Border Protection has withdrawn a proposal that would have

placed vessels engaged in the repair of offshore oil and gas installations within the

constraints of the Jones Act. The Jones Act requires vessels transporting passengers or

merchandise between U.S. ports to be manufactured, owned and flagged in the United

States.

In a 1976 ruling the Customs Service confirmed a longstanding position that a ves-

sel engaged in the laying of an offshore pipeline is not engaged in coastwise trade and

can, therefore, be foreign flagged. That ruling included a clarification that a vessel

engaged in pipeline repair would also be exempt from the Jones Act, even although

the vessel may be transporting material required for the repair work. The agency

included within that exemption vessels engaged in connecting pipelines to offshore

platforms, and conducting platform repairs, provided that materials not required for

that work are not delivered to the platform.

In January of this year CBP issued a proposed order, confirming that offshore

repair work is not coastwise trade but saying that the carriage of materials for the

repairs does constitute the transportation of merchandise. Thus, an operator of an off-

shore repair operation would require a U.S. vessel to carry repair materials to the site

of the operation. The agency said that changes in the pertinent laws since 1976 had

made the 1976 interpretation of the law invalid.

On the other hand tools used to conduct an offshore repair are viewed to be vessel

equipment and, as such, would not trigger Jones Act vessel ownership restrictions, the

proposed order said.

On May 10 CBP announced that, after receiving more than 3,000 comments, both

supporting and opposing its proposal, it was withdrawing its January notice. The

American Petroleum Institute promptly issued a statement welcoming the proposal

withdrawal.

“By rescinding the proposal, CBP has decided not to impose potentially serious

limitations to the industry’s ability to safely, effectively, and economically operate,”

said API Upstream Director Erik Milito. “The responsible development of America’s

abundant oil and natural gas resources is a critical part of a forward-looking energy

policy that will secure our energy future and help meet our nation’s energy needs.”

—ALAN BAILEY

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Senate Resources substantially amend-

ed the bill, which was further amended in

Senate Finance. That bill passed the

Senate May 15, and the House, as expect-

ed, rejected the Senate version May 16.

On day 121 of the regular session,

May 17, the Senate voted against rescind-

ing its amendments to the House bill.

Legislation passed last year, HB 247,

ended the refundable credit system for

Cook Inlet. A goal of all versions of HB

111 has been ending refundable credits on

the North Slope.

The Department of Revenue fiscal

note for the Senate Finance CS describes

the bill as “a comprehensive attempt to

reform and reduce the cost of Alaska’s

current program of providing direct tax

credit rebates and other advantages to oil

and gas companies.”

State repurchase of credits began in

2007, with some $8 billion in tax credits

received by companies through the end of

fiscal year 2016, including credits against

tax liability and credits repurchased by

the state.

Revenue said the Senate Finance CS

would provide additional revenue up to

$12.5 million per year, with no new addi-

tional revenue expected in FY 2017 due

to phased implementation.

The department said changes in the bill

would require “somewhat substantial

reprogramming of the Tax Revenue

Management System and Revenue Online

tax portal,” at an estimated one-time cost

of $1.2 million.

Revenue said the CS repeals certain

credits and closes loopholes with the car-

ried forward annual loss credit reduced to

15 percent and sunset in 2018 for Cook

Inlet and Middle Earth. Unlike previous

versions, the CS does not create a Cook

Inlet legislative working group but

instead extends the current Cook Inlet tax

cap, averaging 17.5 cents on Cook Inlet

gas, indefinitely, and establishes a new

tax, not to exceed $1 per barrel, for Cook

Inlet oil.

The CS keeps the current North Slope

$70 million per company cap on annual

credit certificate repurchases, but allows

only the first $35 million to be repur-

chased at full face value, with the remain-

der at 75 percent. A company can also

choose to carry the second part forward.

Operating losses for larger companies

continue to be carried forward against

future taxes.

The gross value reduction for new oil

only applies for the first seven years of

production and is lost on Jan. 1, 2023, for

fields receiving it prior to the bill’s effec-

tive date. The GVR can be terminated

early if the price of oil exceeds $70 for

three years of production.

Revenue said the Finance CS also

repeals several older and currently unused

exploration credit programs and authoriz-

es the department to use credit certificates

to offset a company’s other obligations to

the state prior to repurchase.

Reactions to Senate versionAlaska Oil and Gas Association

President and CEO Kara Moriarty said in

a May 15 statement that the Senate CS is

“the seventh change to Alaska’s oil tax

structure in 12 years. It eliminates cash

payments to companies, and adds $1.2

billion to the State of Alaska’s treasury

over the next 10 years.”


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HB 111

see HB 111 page 15

none in the first quarter of 2015, shortly

after taking over control of the unit. The

previous unit operator BP drilled 12 in the

first quarter of 2014 as it completed an

atypically large development at F pad,

and none in the first quarter of 2013.

Hilcorp is in the early stages of rede-

veloping the Milne Point unit and recent-

ly announced a major drilling program

for the remainder of this year. The com-

pany also plans to begin drilling activities

at the Duck Island unit, which has not had

any new drilling since 2009.

Oooguruk and NikaitchuqThe first three months of the year saw

no new development drilling at either the

Oooguruk unit or the Nikaitchuq unit,

which have both been suspended for near-

ly a year.

Eni recently announced plans to

resume development activities at the

Nikaitchuq unit this year, although the

lack of first quarter activities falls short of

company timelines.

Caelus has announced no timetable for

resuming drilling at Oooguruk. l

ing in late June.

In early June, the company plans to

perform “micro stimulations … to cali-

brate the stress profile in the zone of

interest. This data will then be combined

with the processed and interpreted log

information in order to select the optimal

location of perforations for the main stim-

ulation operation,” according to 88

Energy. The company expects to conduct

the “main stimulation” in the third week

of June, followed by a one-to-two-week

cleanup and a production test at a choked

back rate to prevent proppant from being

displaced.

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Moriarty said the state takes in

more revenue than industry “at

every oil price — at high and low oil

prices.”

HB 111 originated in House

Resources, co-chaired by Rep.

Geran Tarr and Rep. Andy

Josephson, both Anchorage

Democrats.

“The Senate version of the bill

follows the lead of the House in

stopping the unsustainable practice

of the State of Alaska paying for tax

credits,” Tarr said in a May 16 state-

ment.

“However,” she said, “the Senate

version of the bill has major prob-

lems that we just could not accept.”

Tarr cited changes in the House

version designed “to make Alaska’s

tax system work better in the current

low oil environment.”

“The Senate Majority took our

good bill that was developed in the

open, with advice from the experts

and the input of Alaskans, and

replaced it with a bad bill that con-

tinues many of the flaws that have

placed Alaska in our current precari-

ous financial position,” Josephson

said. “The best course of action is to

take this bill to a conference com-

mittee where an acceptable compro-

mise can be reached that protects the

state during these low oil prices,

while still keeping Alaska competi-

tive as a place for future oil industry

investments.”

Senators have argued that any

substantial rewrite of the state’s oil

tax system requires time and expert

testimony than time allows this year.

—KRISTEN NELSON


Afognak’s Alutiiq youth activities offer invaluable

opportunities to learn the endangered Alutiiq language and

practice land stewardship, traditional harvest, survival skills

and healthy relationships. Tribal-led cultural education

activities seek to build a sense of pride, identity, and

wellbeing in Alutiiq youth. The Alutiiq people’s history and

ongoing economic and social impacts is why reconnecting

these youth to their Afognak Island homeland to practice

healthy traditional activities is so valuable, for both those who

live on Kodiak Island and those who return in the summer.

Sponsorhip opportunities are still available!

Help sustain cultural education

opportunities for Afognak’s

Alutiiq youth, contact Ana Fisk

at 907-244-4377 or

[email protected].

All event contributions are eligible

for a tax deduction.

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Providing camps, lodging

operations, catering, facility

and life support systems

since 1973

wells will result in measured depths of

about 34,000 feet, the plan says.

Further drillingEni told the division that, depending

on the initial results of the drilling, the

company may take further action, starting

with bypass drilling for rock coring. From

either well, following an analysis of well

logs and core data, the company may later

drill a 1,000-foot horizontal sidetrack

well for production testing. The produc-

tion testing would involve the flowback

of oil to surface test equipment on the Spy

Island pad.

The drilling of the NN01 well is sched-

uled to start at the beginning of December

this year, potentially continuing until the

beginning of March. Eni may then drill

the second well, the NN02 well, during

the summer of 2018. Depending on

results, Eni may conduct the horizontal

sidetrack drilling during the winter of

2018-19.

Eni will presumably require an espe-

cially powerful drilling rig for the

extreme extended reach drilling involved

in its Nikaitchuq North project. The com-

pany’s plan anticipates the use of the

Doyon Rig 15, or a similar rig.

The company is in the process of seek-

ing approval from the federal Bureau of

Ocean Energy Management for an explo-

ration plan involving the proposed wells.

The project will require a drilling permit

from the Alaska Oil and Gas

Conservation Commission.

At the end of February the federal

Bureau of Safety and Environmental

Enforcement approved the formation of

the Harrison Bay Block 6423 unit, a unit

encompassing 13 federal leases that

include the Nikaitchuq North prospect.

Schrader Bluff formationThe producing oil reservoir in the

Nikaitchuq field under state waters of the

Beaufort Sea lies in the upper Cretaceous

OA sands of the Schrader Bluff forma-

tion, although Eni has also been consider-

ing development in another sand unit, the

Schrader Bluff N sands. The Schrader

Bluff formation is known to extend a long

way out into the Beaufort Sea continental

shelf. The formation lies within the

Brookian sequence, the youngest and

shallowest of the major North Slope

petroleum bearing rock sequences.

Development of the Schrader Bluff in

the Nikaitchuq field has been challenging

because of the compartmentalized nature

of the sands and the relatively viscous oil.

Eni has been using a combination of hor-

izontal injection and production wells,

with both electric submersible pumps and

water injection boosting oil production.

The company has been threading horizon-

tal, multilateral sidetrack wells through

the sand bodies.

On the continental shelf the Brookian

typically lies on top of older rocks that

have been faulted into large blocks. The

Brookian sands are though to thicken in

the more downthrown rock sections

between the faults. l


NIKAITCHUQ NORTH


HB 111

Development of the Schrader Bluffin the Nikaitchuq field has been

challenging because of thecompartmentalized nature of the

sands and the relatively viscous oil.

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Conducting an appraisalWiggin likened the process of receiv-

ing the data from a survey to conducting

an appraisal on a house prior to making a

house purchase. The division must verify

that the data from a survey is complete,

that the data can be loaded and that the

data are usable before the state can issue

a tax credit certificate, he explained. In

addition, the Alaska Department of

Revenue must go through a parallel mas-

sive process, validating all of the receipts

for payments associated with the survey,

tying the receipts back to the specific sur-

vey, to verify the size of the credit that is

due.

And, ultimately, under the terms of the

tax credit rules, after 10 years the data

from the survey needs to be made avail-

able to the public in some appropriate for-

mat.

The catch in the process is the quantity

of data involved.

Raw measurementsThe data consists of the raw measure-

ments collected in the field when a survey

was carried out. In a survey, seismic

sound sources create sound waves, the

subsurface echoes of which are recorded

using a series of geophones placed along

a line or on a grid pattern. For each sound

signal, each geophone will record echoes

as a seismic trace, digitized into thou-

sands of individual numbers in a digital

recording. Each echo represents a single

point in the subsurface halfway between

the sound source and the geophone.

Seismic processing involves combining

and filtering the individual traces to con-

struct images of the subsurface.

But with the raw data consisting of a

multiplicity of individual traces, collected

using multiple seismic shots conducted at

multiple locations, and with surveys

increasing in size and complexity over the

years, the scale of the data involved has

grown exponentially since the seismic tax

credit program went into operation.

Between 2004 and 2011 a survey

might typically involve less than 5 ter-

abytes of data (5,000 gigabytes). But,

starting in 2012, the data volumes sky-

rocketed, said Paul Decker, the division’s

resource evaluation manager. A recent

survey involved a staggering 277 ter-

abytes of data, he said.

Delivered on computer drivesThe data are delivered to the division

in batches at various times on a series of

detachable hard computer drives — divi-

sion staff have to download the data from

each drive into the division’s own com-

puter system. Each drive may contain 6 or

7 terabytes of data. And on a large survey

up to 100 drives may be required to hold

all of the data. Especially given that com-

puter software has to reconcile the bit

count for the downloaded data, to ensure

data integrity, it may take two days to

process a single disk, Decker explained.

And issues can arise with having to deal

with data in different variants of seismic

data formats.

It doesn’t end there.

Quality controlIn the interests of data security, the

division makes a duplicate copy of the

data as a backup. Division staff also take

the uploaded data and transfer it into the

division’s own seismic processing sys-

tem, converting the data into the process-

ing system’s data format. The examina-

tion of the data in this system forms an

essential component of the data quality

control, enabling division staff to verify

data completeness, accuracy and self-

consistency, Decker explained. The divi-

sion could also use its own system to

process the data as part of its resource

evaluation function.

The processing system enables divi-

sion staff to determine the exact geo-

graphic location from which the seismic

reflections in each individual seismic

trace originated. This location determina-

tion serves several purposes. First of all, it

becomes possible to determine what per-

centage of the data was gathered from

within an oil and gas unit, an essential

parameter in determining what proportion

of a survey is eligible for a tax credit. In

addition, when the data become available

to the public, it will be possible, on

request, to deliver just the data for a spe-

cific unit or land area, rather than for a

complete survey or for a broader area of

territory.

Another critically important reason for

linking individual raw seismic traces to

geographic locations is a need to exclude

from the data available to the public any

data gathered from privately owned sub-

surface land where the land owner does

not wish the data to be released, Decker

explained.

Data copy for exportHaving quality controlled the data and

tied the seismic traces back to locations,

division staff then have to make another

copy of the raw data, excluding from that

data any seismic traces that need to be

withheld because of land ownership con-

siderations. This third data copy, stored in

a standard format and file structure, then

becomes the pool of data eventually

available to the public.

The complete process for a single sur-

vey takes up to a year to complete, a sim-

ilar timeframe to that required for the

Department of Revenue to audit the sur-

vey financial data, Decker said.

Alaska’s Division of Geological and

Geophysical Services’ Geologic

Materials Center is responsible for pro-

viding access to publicly available seis-

mic data, although the mechanism for

doing this is a work in progress. The

eventual concept is something akin to an

online shop, where people would be able

to order data based on various selection

criteria. However, people would have to

go to the GMC with a set of hard drives to

actually pick the data up, Decker said.

And, given constraints on state funding,

DNR is working up a fee structure for

obtaining data, with the fees used to cover

the cost of the data management, he said.

Processing limitationsThe processing that the division has

been conducting requires a huge amount

of data storage, and it only has one high-

speed computer server for conducting the

work. But the division has made good

progress in its quality control efforts and

is now about three-quarters of the way

through processing the tax credit applica-

tions expected to be submitted, Decker

said. Given that the number of these

applications is now expected to drop and

given current constraints on state expen-

diture, it is necessary to be cautious about

spending money on further computer sys-

tem upgrades for what will likely prove a

temporary bulge in processing, Decker

commented.

But the division is beginning to feel

time pressure over completing the seismic

data management. It has improved the

technology that it is using, has significant-

ly improved the efficiency of the data man-

agement process and is looking to

rearrange some staff assignments, to make

more people available to help with the

effort, despite reductions in the state

administration’s headcount, Decker said. l


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SEISMIC DATAIn a survey, seismic sound sources

create sound waves, thesubsurface echoes of which are

recorded using a series ofgeophones placed along a line or

on a grid pattern.

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