petroleum news 071314 petroleum news 082904 · l natural gas l s l exploration & production...

l N A T U R A L G A S


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

page3

Q&A: Parnell says markets, morestate experience, move gas project

Vol. 19, No. 28 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of July 13, 2014 • $2.50

PETR

OLE

UM

NEW

S FI

LE

FNG seeks rate hikeInterior utility wants to recover cost of abandoned North Slope LNG project

By ERIC LIDJIFor Petroleum News

In its first rate case since becoming a certificat-ed utility some 17 years ago, Fairbanks Natural

Gas LLC is asking state regulators for a 6.92 per-cent service rate increase.

The local distribution company is asking theRegulatory Commission of Alaska to approve apermanent rate increase and to install a mechanismthat would allow the company to more easily passalong fluctuations in commodity prices in thefuture.

The increase would offset a nearly $1.4 milliondeficit expected under current rates.

The request is the first rate case since FairbanksNatural Gas started its life in 1997. The companyoperated under its inception rates until 2002, whenregulators exempted the company from economicregulation. Fairbanks Natural Gas voluntarilyaccepted rate regulation in late 2012 as a way to

BC’s LNG list growsWesPac Midstream requests 25-year export license from National Energy Board

By GARY PARKFor Petroleum News

British Columbia’s lineup of LNG proposalshas grown to 15 with U.S.-based WesPac

Midstream requesting a 25-year export licensefrom the National Energy Board to ship up to 3million metric tons a year to customers in Asia, theU.S., Central America and South America.

In entering the public arena, WesPac is the sec-ond to propose a terminal in the Greater Vancouverarea, targeting Delta for its Tilbury LNG plant.

It follows Woodfibre LNG, privately owned bySingapore-based RGE, which received a 25-yearexport license last December for 2.1 million metrictons a year from an industrial side near the town of

Squamish.FortisBC, a utility company serving 1.1 million

customers, operates the Tilbury Island plant whichhas been scheduled for a C$400 million expansionbefore WesPac surfaced.

“LNG is currently produced at the Tilbury LNGplant for sale in both local British Columbia mar-kets and regional markets, including truck-based

Continuing developmentDrilling & oil recovery procedures keep oil flowing from Kuparuk satellites

By ALAN BAILEYPetroleum News

Although much attention on Alaska’s NorthSlope tends to focus on Prudhoe Bay and

Kuparuk River, the huge legacy oil fields of theregion, continued exploration andappraisal around these fields has ledto the development of a number ofmore modest-sized fields. Referredto as “satellites,” and feeding oiland gas into the production facilities of their largercousins, these fields make valuable contributions toNorth Slope oil production.

In a series of updated plans of development filedwith Alaska’s Division of Oil and Gas, Kuparuk fieldoperator ConocoPhillips has provided insights into

how the Kuparuk satellite fields, in particular, arebeing managed, to maximize the recovery of oil fromvarious oil pools within the Kuparuk River unit.

TarnThe Tarn field, discovered from exploration

drilling conducted in 1997 and brought online in1998, had produced a total of 109 million barrels of

The requested rate increase would, inpart, cover the $5 million the company

spent on developing the abandoned NorthSlope LNG project over the past eight

years.

see FNG RATE HIKE page 14

In entering the public arena, WesPac isthe second to propose a terminal in the

Greater Vancouver area, targeting Deltafor its Tilbury LNG plant.

see LNG LIST page 20

In addition to developments within theexisting Tarn field, ConocoPhillips has

been evaluating opportunities in two otherrelated discoveries, the Cairn and the

Esker prospects, the plan says.

see SATELLITE FIELDS page 18

Commercial agreement signed forAKLNG project; work under way

A formal commercial agreement has been signed for theAlaska liquefied natural gas project, Alaska Gov. Sean Parnellsaid July 2. Signatories were the Alaska Gasline DevelopmentCorp., BP, ExxonMobil, ConocoPhillips and TransCanada.

“Environmental and pipeline engineering fieldwork hasofficially begun,” Parnell said in a statement.

The commercial agreement means the Alaska LNG Projecthas fully entered the pre-front end engineering and design, orpre-FEED, phase, “a milestone no previous Alaska gaslineproject has achieved,” the statement said.

The producer parties will spend hundreds of millions ofdollars on design and engineering for the project during pre-FEED, and will also begin work to secure an export licensewith the U.S. Department of Energy and continue permittingwork with the Federal Energy Regulatory Commission.

In addition, the state, and each producing party, will beginto engage the LNG market during the pre-FEED stage.

Passage of SB 138Passage of Senate Bill 138 in April — the enabling legisla-

Nunavut edges toward comebackA demanding process that could lead to a revival of oil and

natural gas exploration in Canada’s High Arctic has taken akey step forward with conditional approval of a 2-D seismicsurvey in Nunavut’s Baffin Bay and Davis Strait.

The National Energy Board completed a painstaking pub-lic examination of an application to conduct the survey overfive years of open water seasons by issuing a GeophysicalOperations Authorization, GOA, along with 15 conditions theproponents must meet.

The survey partners are operator Multi Klein Invest AS,Norway’s TGS NOPEC Geophysical Co. and PetroleumGeoServices.

In response to a “high degree of public interest” the feder-al regulator conducted four days of hearings last year in PondInlet, Clyde River, Qikiqtarjuag and Iqaluit, noting that thepublic participation was unprecedented in its environmentalassessment process for a GOA.

Initial recommendations were prepared by board memberDavid Hamilton, with the public invited to submit writtencomments and provide oral responses.

The environmental assessment report concluded thatimplementation of MKI’s commitments, environmental pro-tection procedures and mitigation measures, and compliancewith the board’s regulatory requirements and conditions, the

see LNG PROJECT page 20

see NUNAVUT COMEBACK page 18

http://www.petroleumnews.com

http://www.nstiak.com

http://www.unlockingalaska.com

2 PETROLEUM NEWS • WEEK OF JULY 13, 2014

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

8 Parnell names municipal advisory board

9 No substantial new info for fall sales

9 Osum Oil Sands makes bold moves

EXPLORATION & PRODUCTION

FINANCE & ECONOMY4 Encana leads Western Canada deal making

Sheds Bighorn natural gas properties; company narrowsfocus to core areas in Canada, Colorado, New Mexico, southeastern US

11 Coalition asks to uphold Quality Bank

Three producers, a refiner and FERC staff believe FERC was right in preserving the existing methodology despite protests

12 AOGCC puts Kenai Loop hearing on hold

Commission makes change in Buccaneer escrowrequirement; defers gas field unitization action following company’s bankruptcy filing

10 The first of the Cook Inlet giants

Alaska’s Kenai gas field has delivered more than 2.4 trillion cubic feet of dry natural gas since going into production in 1961

13 EIA: Brent crude spot price peaks in June

Combined US, Canada liquids production projected to grow by 1.6 million bpd in 2014, majority of non-OPEC increase of 1.7 million bpd

14 Caelus approved as Oooguruk operator

11 CIRI wants Kenai Loop cases to proceed

12 New council for Alaska geospatial data

Commercial agreement signed for AKLNG project; work under way

Nunavut edges toward comeback

FNG seeks rate hike

Interior utility wants to recover cost of abandoned North Slope LNG project

ON THE COVER

BC’s LNG list grows

WesPac Midstream requests 25-year export license from National Energy Board

Continuing development

Drilling & oil recovery procedures keep oil flowing from Kuparuk satellites

PIPELINES & DOWNSTREAM

3 Parnell: markets, experience move project

Governor says North Slope LNG project result of market changes, alignment of state and producers, and state’s growing experience

6 OIG criticizes BLM permitting delays

Says insufficient process management and lack of results-oriented goals lead to long review times for drilling permit applications

7 Alberta: budget surplus, still borrowing

Non-renewable resource revenue up 32%, turningprojected deficit into surplus; finance minister rates Alberta as ‘shining light’

GOVERNMENT

8 Gas price hike comes down to accounting

Warm winter and spring caused Enstar to overestimategas demand, leaving a deficit in utility’s gas purchase, sale balance

NATURAL GAS

LAND & LEASING

Alaska’sOil and GasConsultants

GeoscienceEngineeringProject ManagementSeismic and Well Data

3601 C Street, Suite 1424Anchorage, AK 99503

(907) 272-1232(907) 272-1344

[email protected]

SIDEBAR, Page 7: It’s pay up time for Alberta

http://www.petroak.com

By STEVE QUINNFor Petroleum News

The word alignment has been closelylinked to the state’s natural gas

pipeline plan, this time to ship NorthSlope gas to a liquefied natural gasexport facility in Cook Inlet.

Gov. Sean Parnell believes the wordnot only has merit butit is reflected in therecent joint ventureagreement signedamong the AlaskaGasline Development Corp.,TransCanada and North Slope leasehold-ers ExxonMobil, ConocoPhillips and BP.Last week Parnell announced the agree-ment and the upcoming work, known asthe pre-front end engineering and designor pre-FEED that will take place overthe next 18 months.

The agreement calls for partners toinvest millions in pre-FEED work overthe next 18 months for the project,which could ultimately cost between $45billion and $65 billion.

It also comes two months after thestate’s solidly Republican Legislaturebacked Parnell’s plan to work withindustry players.

Parnell has been on the front lines ofthe state’s efforts to advance a gas lineproject on and off since 2003. Heworked for the Division of Oil and Gasin the early years under Gov. FrankMurkowski, and was lieutenant governorwhen the state pursued a line under Gov.Sarah Palin’s Alaska Gasline InducementAct.

Severe market changes weakenedAGIA, making an overland line uneco-nomical.

Parnell then turned to the LNGoption. Along the way, he convened ameeting with CEOs from the NorthSlope producers, negotiating a produc-tion settlement on Point Thomson leaseswith Exxon and its partners, andreceived support for Senate Bill 138,enabling legislation authorizing theadministration to negotiate a projectdevelopment agreement.

Parnell also used this past session toboost up the refining industry after FlintHills announced plans to shut down andbecome an oil shipping and storage ter-minal. Flint Hills followed through withthose plans while Parnell and theLegislature created tax credits againstincreased investment into state’s refiner-ies.

Parnell sat down with PetroleumNews to discuss these developments andwhat he believes they mean for Alaska’sfuture.

Petroleum News: What do you believehas changed that put Alaska on its cur-rent course? Is it the market? Is it amore educated administration? Is it a lit-tle bit of each working in sync with oneanother?

Parnell: I was the deputy director forthe Division of Oil and Gas and I repre-sented the state in negotiations on a gasline in the Murkowski administration. Iwas on the state team that was negotiat-ing at the time with TransCanada. Therewas a separate team negotiating with theproducers. As you recall, Gov.Murkowski in 2005 elected not to pro-ceed with TransCanada negotiations andfocus exclusively after that with produc-

er negotiations. Ileft the Division ofOil and Gas in 2005and I was not therewhen everythingblew up, but I didgain a very usefulperspective and sawwhat went wrongand what went right.

So then yourquestion is what’s changed that’s putAlaska on its current course? It’s a cou-ple of things. One, certainly the markethas changed. Back then, and not so longago, everybody thought the Lower 48states were going to be the market forAlaska’s gas after Alaskans get theirown gas for their own energy purposes.With the advent of shale gas in theLower 48, and the loss of that market,combined with the urgent need for moregas in the Pacific Rim, specifically Japanand Korea and then China beyond them,the market has changed. It’s actually setup an easier system. It’s a complex proj-ect and it’s easier for Alaskans and thecompanies to deal with a pipelinethrough the state of Alaska, through onestate, rather than through two differentcountries and multiple jurisdictions thatway.

The markets have changed and obvi-ously our experience has changed, too.The state as an owner of the resource,that remains the same. I personally sawhow in the earlier years with the produc-

er negotiations — again I was notinvolved with the producers negotiations— public trust and confidence was lostbecause the companies demanded thatthe state make a lot of promises and a lotof commitments without correspondingcommitments on the companies’ side.

As a result of that experience, I set anew course, and I started it and modeledit after the Point Thomson litigation andthat resolution where we were makingwhat I call commensurate proportionatecommitments. Meaning, you take a step.We take a step. You take astep. We take a step.Building a gas line and anLNG project is not going tobe a situation where pro-ducers say you give upeverything and wait for us. That’s totallyunacceptable and we are on a completelydifferent path from that the state was onbefore. I think that what changed werethe markets but also our experience. Weare acting like an owner of the resourceand we’ve become an owner of a proj-ect. Both are to Alaska’s benefit.

Petroleum News: What is it that youlike about taking an ownership stake ina project like this? I know we got aheads up that this might be coming inthe recent session with Black & Veatchreport.

Parnell: It’s more money and moreopportunity for Alaskans. It’s pure andsimple about getting greater Alaska ben-

efit through taking an ownership stake inthe project. The numbers that were cal-culated in our experts models that wesaw last fall and presented to theLegislature demonstrated to us as well asto them through the public process thatAlaskans are better off in this project asowners in the project.

Petroleum News: There are not toomany models out there in non socialistcountries. Do you see yourselves break-ing new ground or feeling your way

around the dark or a littleof each?

Parnell: You know aswell as I do because ourConstitution says Alaska isthe owner of the resource,

we not only have to act like an owner ofthe resource but we also have to be thesovereign that collects taxes as well. Thequestion really is how do you bringthose realities together in a competitiveenvironment, where we do want the pri-vate sector doing what they do best:competently and efficiently buildingprojects and getting gas to market.That’s something we don’t have expert-ise in. That’s something we do haveexperts advising us who have done thesekinds of things for decades.

Petroleum News: You noted howyou’re doing things in stages. The pro-

l G O V E R N M E N T

Parnell: markets, experience move projectGovernor says North Slope LNG project result of market changes, alignment of state and producers, and state’s growing experience

PETROLEUM NEWS • WEEK OF JULY 13, 2014 3

��

��

�� !

�� "�#� ��$��

� �� % �� & ��

��$ ��%��

�� !��"�

E N G I N E E R S • P L A N N E R S • S C I E N T I S T S • C O N S T R U C T O R S

URS is one of the world’s leading engineering fi rms. Our professional staff work together to develop innovative and cost-eff ective solutions to the challenges facing government and industry.

ANCHORAGE700 G Street, Suite 500Tel: 907.562.3366

FAIRBANKS3504 Industrial Avenue, Suite 125Tel: 907.374.0303

ENGINEERINGEXCELLENCE

THE HIGHEST STANDARD IN

GOV. SEAN PARNELL

see PARNELL Q&A page 17

http://www.maritimehelicopters.com


Kay Cashman PUBLISHER & EXECUTIVE EDITOR

Mary Mack CEO & GENERAL MANAGER

Kristen Nelson EDITOR-IN-CHIEF

Susan Crane ADVERTISING DIRECTOR

Bonnie Yonker AK / NATL ADVERTISING SPECIALIST

Heather Yates BOOKKEEPER & CIRCULATION MANAGER

Shane Lasley IT CHIEF

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Alan Bailey SENIOR STAFF WRITER

Eric Lidji CONTRIBUTING WRITER

Wesley Loy CONTRIBUTING WRITER

Gary Park CONTRIBUTING WRITER (CANADA)

Rose Ragsdale CONTRIBUTING WRITER

Ray Tyson CONTRIBUTING WRITER

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Mapmakers Alaska CARTOGRAPHY

Forrest Crane CONTRACT PHOTOGRAPHER

Tom Kearney ADVERTISING DESIGN MANAGER

Renee Garbutt CIRCULATION SALES

Ashley Lindly RESEARCH ASSOCIATE

Dee Cashman RESEARCH ASSOCIATE

Petroleum News and its supple-ment, Petroleum Directory, are

owned by Petroleum Newspapersof Alaska LLC. The newspaper ispublished weekly. Several of theindividuals listed above work forindependent companies that con-

tract services to PetroleumNewspapers of Alaska LLC or are

freelance writers.

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

NEWS [email protected]

CIRCULATION 907.522.9469 [email protected]

ADVERTISING Susan Crane • [email protected]

Bonnie Yonker • [email protected]

FAX FOR ALL DEPARTMENTS907.522.9583

OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 19, No. 28 • Week of July 13, 2014

Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518(Please mail ALL correspondence to:

P.O. Box 231647 Anchorage, AK 99523-1647)Subscription prices in U.S. — $98.00 1 year, $176.00 2 years

Canada — $185.95 1 year, $334.95 2 years Overseas (sent air mail) — $220.00 1 year, $396.00 2 years“Periodicals postage paid at Anchorage, AK 99502-9986.”

POSTMASTER: Send address changes to Petroleum News, P.O. Box 231647 Anchorage, AK 99523-1647.

www.PetroleumNews.com

O U R P A S S I O N I S

EXPLORATION

Alaska’s Premier Motorola DealerProviding Alaskans with two way radio and wireless communications.

The future of two-way radio.

NORTH SLOPETELECOM, INC.

907.751.8200 | www.nstiak.com

MOTOTRBOTM PROFESSIONALDIGITAL TWO-WAYRADIO SYSTEM.

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

Encana leads WesternCanada deal makingSheds Bighorn natural gas properties; company narrows focus tocore areas in Canada, Colorado, New Mexico, southeastern US


Encana has given the largest prod tothe latest round of asset deal-making

in Western Canada by shedding its exten-sive Bighorn natural gas properties toJupiter Resources for US$1.8 billion.

Chief Executive Officer Doug Suttlessaid in a press release that the transactionwill advance his company’s strategy “byunlocking value from our portfolio as wefocus on developing our core growth playsand extracting additional value from ourbase assets.”

He said Bighorn in west-central Albertais a “high quality asset that has not beenreceiving significant investment in 2014.Going forward, it should serve as an excel-lent foundational asset” for Jupiter.

The deal, expected to close later thisyear, includes 360,000 net acres of land,plus Encana’s working interests in allrelated pipelines and other facilities. Thereserves are estimated at 1.1 billion cubicfeet equivalent, with gas accounting for 75percent.

The properties yielded first-quarter vol-umes of 319 million cubic feet equivalent(23 percent oil and NGLs) and have 32trillion cubic feet and up to 2 billion bar-rels of liquids in place (1.3 tcf equivalentproved).

Under Suttles, who occupied the topsuite a year ago, Encana has narrowed itspriorities to core areas: the Montney andDuvernay in Western Canada; the DJbasin in Colorado; the San Juan basin inNew Mexico; and the Tuscaloosa Marineshale in the southeastern United States.

It has also recently added the EagleFord shale play in Texas through a US$3.1billion purchase in May.

Other deals have included the sale ofdry gas assets in Wyoming and East Texas.

Price at low endPhil Skolnick, an analyst with

Canaccord Genuity, rated the US$1.8 bil-lion price as “disappointing,” while RandyOllenberger, with the Bank of Montreal,said the value was at the low end of hisexpectations of US$1.9 billion to US$2.5billion.

Suttles has indicated the once NorthAmerican gas production leader couldbuild a fold of eight core areas, a drasticchange from a company that once haswidely scattered operations in dozens ofregions.

The company has also reduced staff by20 percent by spinning off 5.2 million

acres of freehold southern Alberta landholdings into PrairieSky Royalty.

Jupiter Chief Executive Officer SimonBregazzi rated Bighorn as “one of NorthAmerica’s premier liquids-rich natural gasprojects in an area that has generated someof Canada’s most prolific well results inrecent years.”

Privately owned Jupiter was foundedby Apollo Global Management, whichdescribes itself as an “alternative invest-ment manager” that concentrates on con-trarian bets in private equity, credit andreal estate.

Other recent dealsIn other deals since mid-June:•Long Run Exploration continued the

consolidation of its west-central AlbertaCardium assets by acquiring CrocottaEnergy in a C$357 million deal, followingthe May closing of its purchase of oil andliquids-rich Cardium assets from CrewEnergy for C$225 million.

Under the arrangement, a separatecompany will be created to own Crocotta’sMontney assets.

Long Run Vice President of BusinessDevelopment Jason Fleury said the “win-win” deal enables his company to consoli-date in a core area where it established afoothold with the Crew assets.

The Crocotta properties are producing7,500 boe per day, while the Montneybased company will produce 2,300 boeper day.

Crocotta started out as a private com-pany seven years ago with production of100 boe per day and grew to 9,800 boe perday.

Long Run is now targeting average out-put this year of 31,100 boe per day and43,2o00 boe per day in 2015.

•Kelt Exploration has struck a cash-and-shares deal to buy Alberta Montneyoil and gas assets from a private companythat has not been identified.

The core producing areas for the assetsare at Pouce Coupe and Spirit River inwest-central Alberta near Grande Prairie.

Kelt plans to cover the transaction with4.3 million shares valued at C$53 millionand the balance of C$107 million withcash.

The assets currently produce 2,300 boeper day (70 percent oil), boosting Kelt’saverage 2014 production by 10 percent to12,150 boe per day, exiting 2014 at 15,300boe per day. l

http://www.saexploration.com


Miller Energy’s revitalization of the Osprey Platform is just one endeavor that has opened the way for production increases. By combining geological expertise, technical experience and sound management, we expect to significantly enhance the value of these assets now and in the future.

unlockingalaska.com nyse: mill

osprey platform

cook inlet

Unlocking Alaska


The Office of the Inspector General,or OIG, in the Department of the

Interior, has issued a report criticizing thelength of time that it takes the Bureau ofLand Management to process drillingpermits for the oil and gas industry. Thereport also comments on the adverseimpacts on agencies and industry ofuncertainties in permit processing times.

“We found that neither BLM nor theoperator can predict when the permit willbe approved,” the report says. “Targetdates for completion for individual APDs(applications for permit to drill) are rarelyset and enforced, and consequently thereview may continue indefinitely.”

BLM reported that in 2012 the averagetime it took to process a drilling permitapplication was 228 days. By compari-son, state authorities claim that they

process the same type of permit in 80days or less. However, compared withstate officials, the federal authorities facesome significant complications — com-plications can include mandates for mul-tiple use of land, compliance with federallaws that do not apply to state land, anddealing with land ownership issues, thereport says.

A review under the NationalEnvironmental Policy Act of the potentialsurface impacts of the proposed drillingaccounts for most of the drilling applica-tion processing time. And the involve-

ment of several government agencies inthis process adds complexity, the reportsays,

But, with annual revenues from oil andgas production on federal land averagingsome $3 billion in recent years, the time-ly processing of drilling applications isimportant to federal finances. And theOIG made several recommendations forimproving the BLM permitting process.

Improve the process managementWith possibly more than a dozen par-

ticipants in the processing of a single per-mit, BLM should assign a project manag-er to oversee and coordinate the process,the report says.

BLM also needs to implement, enforceand report timeline targets for permit pro-cessing. Currently, while there are man-dated deadlines for specific steps such asdeeming an application complete, there

are no required timelines for completingthe processing of an application, thereport says.

More generally, BLM should adopt amore performance oriented approach tomanaging the permitting process by set-ting performance measures for theprocess, the report says. Currently, theonly measure that BLM uses is the over-all percentage of pending permit applica-tions processed. But this measure doesnot enable the agency to identify ineffi-ciencies in the process, to pinpoint BLMoffices needing the most attention and todetermine corrective actions. Outcomebased performance measures would bemore constructive and help with produc-tivity the report says.

The report also recommends that BLMmake improvements to the computer sys-tem that is intended for the managementof the permitting process. Because thesystem is cumbersome and complex,many field office employees do not use it— the system data are unreliable andinconsistent, the report says.

Inadequate staffingOIG also found that problems with the

permitting can, in part, be attributed toinadequate specialist staffing in someBLM offices. In particular, some federalfunding assistance granted under theEnergy Policy Act of 2005 has becomemisdirected, as a consequence of somesignificant changes in workloads at vari-ous BLM offices. The Department of theInterior needs to work with Congress toensure that funding support goes to theBLM offices with the greatest need, thereport says.

But time could be saved in BLMoffices through a greater use of existingpractices that enable the pre-identifica-tion of site-related concerns and theavoidance of duplicated work. Thesepractices consist of the pre-staking ofwell sites and the development of masterplans for multiple drilling operations inspecific areas, the report notes.

The report also recommends as far as


OIG criticizes BLM permitting delaysSays insufficient process management and lack of results-oriented goals lead to long review times for drilling permit applications


Engineering l Fabrication & Construction l Pipeline Construction l Marine Services Operations & Maintenance l Response Operations l Quality, Health, Safety, Environmental & Training Regulatory & Technical Services l Exploration, Drilling Support & Geosciences l Bakken Support

What’s Up?

Dock. The big news around here – ASRC Energy Services Marine

Support is now providing marine services in Cook Inlet. Our

newly refurbished Rig Tenders Marine Terminal is fully equipped

to deliver a wide range of specialized services to the Kenai

Peninsula’s oil and gas industry. In Alaska, only one company

puts it all together – AES.

wwwwww.asr.asrcenercenergygy.com.com

With possibly more than a dozenparticipants in the processing of asingle permit, BLM should assigna project manager to oversee andcoordinate the process, the report

says.

see OIG REPORT page 7

http://www.alaska.bp.com


The Bitumen Bubble, the term createdby the Alberta government last year to

explain a C$6 billion drop in oil revenue,might finally have burst.

Instead of blaming the province’s fiscalhardships on its inability to get oil sandsbitumen to market and being forced to swal-low discounted prices in the United States,Alberta emerged sunny-side up from the2013-14 budget year.

The originally forecast budget deficit forthe year of C$1.97 billion turned into aC$755 million surplus, despite having tocarry C$1.2 billion of an estimated C$6 bil-lion in damage from record mid-2013floods in southern Alberta.

The shift in Alberta’s economic fortunesincluded C$9.6 billion in non-renewableresource revenue, which was up 32 percentfrom the target, benefitting from higher oilprices, a lower differential between bitumenand West Texas Intermediate oil and adecline in the Canadian dollar.

The price of oil for the fiscal year aver-aged US$99.05 per barrel for West TexasIntermediate and C$80.11 for WesternCanada Select, the oil sands benchmark,with raw bitumen production increasing by14.5 percent to 2.09 million barrels per day.

Conventional crude revenues roseC$444 million to C$2.48 billion, while pro-duction edged ahead by 40,000 barrels perday to 580,000 bpd.

Bitumen wells up, conventional downA total of 2,123 bitumen wells were

drilled in calendar year 2013, up 132 wellsfrom 2012, while conventional crude wellsslipped to 2,493 from 2,817.

Natural gas revenues were up by C$105million to C$1.1 billion and average pricesrebounded to C$3.27 per gigajoule fromC$2.29. Marketable production dipped by100 million cubic feet to 3.5 trillion cubicfeet and the number of conventional gaswells for the calendar year totaled 1,109, up136 from 2012.

Revenues from auctions of explorationland continued their slide in recent years,fetching C$590 million compared with

C$1.05 billion the previous year.Returns from the province’s C$17.5 bil-

lion Heritage Savings Trust Fund — thelong-term investment vehicle for surplusresource revenues — rose 50 percent,adding C$3.2 billion to government coffers,while total tax revenues increased 6 percentto C$20.3 billion.

Agreement lackingFinance Minister Doug Horner said the

results make Alberta the “shining light” inCanada.

David Eggen, finance spokesman for theNew Democratic Party, argued that theBitumen Bubble has been exposed as a fab-rication since bitumen sold for an averageUS$80.11 per barrel, up US$12 from thebudget prediction, with bitumen alonepumping C$1.9 billion more into the treas-


Alberta: budget surplus, still borrowingNon-renewable resource revenue up 32%, turning projected deficit into surplus; finance minister rates Alberta as ‘shining light’


Our Commitment to Alaska:

Investing in Our Communities.

BP and its employees donate millions of dollars and thousands of hours

to more than 400 community organizations throughout Alaska. These are

investments that impact each and every Alaskan. And they are ones that

we’re proud to make.

Find out more about BP Alaska at alaska.bp.com

Tulio Perez

Project Services Challenger

BP Alaska

practicable the implementation of someefficiency improvements that some BLMfield offices have identified. Examplesinclude the use of strike teams to bringtogether specialists from multiple BLMoffices, and the use of aerial photographyfor the visual inspection of some drillingsites.

Tailored timelines?In general, BLM has accepted the OIG

recommendations. However, the agencyhas pushed back on the question of set-ting a processing timeline, saying that thetimeline can vary, depending on the com-plexities and other issues associated witha particular drilling plan. OIG counteredthat it would be possible for a BLM proj-ect manager to evaluate a specific permitapplication and set a timeline tailored tothat application. l

continued from page 6

OIG REPORT

It’s pay up time for Alberta As many have predicted for years, the Alberta government is now faced with

paying the price for its determination to refine and upgrade more of its heavycrude production within the province.

The only survivor from a long list of corporate proposals to build facilities inAlberta is now dipping deep into the pockets of its patron.

The fees the government will pay the operators of an Edmonton-area refineryto convert raw bitumen to transportation fuels are now estimated at C$26 billionover 30 years, up C$7 billion from original estimates.

In its 2013-14 fiscal report, the government disclosed the staggering increasewas contained in a previously unannounced revised “processing agreement” thatwas executed three months ago, putting the processing fee at about C$63 per bar-rel, although the province did warn in late 2013 that a hike was in the cards.

However, under the restructured agreement, the province gets a 25 percent vot-ing right on aspects of construction and operation.

The higher tolls reflect cost overruns for the Sturgeon Refinery, whose pricetag is now C$8.5 billion, up 50 percent from the forecast in 2010. The government

see BITUMEN BUBBLE page 8

see PAY UP TIME page 9

http://www.alaska.bp.com

ury than expected.The opposition parties in the Alberta leg-

islature feel they have even more reason todoubt the Conservative party government’sbudgetary methods, with the latest figures

coming only two years after a similar turn-around.

For 2011-12 there was a projected deficitof C$3.4 billion, which ended up shrinkingto a C$23 million shortfall.

The fiscal year which ended March 31generated more than C$45 billion in rev-enue, 17 percent more than forecast, whilespending was up 10 percent to C$42 billion.

In addition to the Heritage Savings TrustFund, Alberta also has a “rainy day contin-gency account,” which stands at C$4.7 bil-lion and is expected to grow in the near-term to C$6 billion, with anything over C$5billion required to either stay in the account,go to capital spending, or go to savings.

Borrowing continuesDespite its strong revenue stream,

Alberta continued borrowing during the lastfiscal year to pay for capital projects, raisingits debt to C$8.7 billion. It is on track to bor-row more than C$21 billion by 2017.

Wildrose Party financial spokesmanRob Anderson said “it’s disappointing andan insult to Albertans that, at a time ofamazing prosperity and revenues, the gov-ernment continues to borrow billions andplay a financial shell game with taxpayers’dollars.”

Budgeting has become the key issue inthe Conservative Party’s leadership contestto replace former premier Alison Redford inJune, with Jim Prentice and Rick McIver —two of the three candidates — calling for arevamping of the budget format. l


• SUPPORTING THE NORTH SLOPE & COOK INLET• HEATERS, GENERATORS, VEHICLES, MANLIFTS, LIGHT PLANTS,

ENVIROVACS, RIGMATS & MOBILE BUILDINGS• CAMPS & CAMP SERVICES• FULL PROJECT LOGISTICS SERVICES & STAFFING

Magtec Alaska, LLC(907) 394-6350Roger Wilson, Prudhoe [email protected]

Skeeter Creighton, Kenai(907) [email protected]

TOTAL PROJECT SUPPORTTOTAL PROJECT SUPPORT

24Hour

Machining Welding

OEM Equipment Production WeldingAccessories Certified Welding

Repair and Overhaul Fabrication

Serving Alaska’s Petroleum Industry for Over 35 Years

APIQR ISO9001:2008, reg. # 0717 • APIQR Spec Q1, reg. # Q1-0456

APIQR ISO/TS 29001, reg. # TS-0268

8875 King St., Anchorage | 907 563-3012 | [email protected] | www.umalaska.com

Threading

API 5CT, lic. # 5CT-1163 • API Spec 7-1, lic. # 7-1-0758 • Vallourec • VAM AB

Tenaris • Hunting • NS Connection Technology • NOV Grant Prideco • Vam USA

A SUMITOMO CORPORATION SUBSIDIARY


BITUMEN BUBBLE

GOVERNMENTParnell names municipal advisory board

Alaska Gov. Sean Parnell has named members of the Municipal Advisory GasProject Review Board, created by the governor to understand potential impacts andbenefits of a major natural gas project on communities throughout the state.

The board, which will review availableinformation, hold public meetings andprovide annual reports to the governor byDec. 15, will be chaired by Department ofRevenue Commissioner Angela Rodell.

Representing boroughs directlyimpacted by the proposed natural gaspipeline project are North Slope BoroughMayor Charlotte Brower of Barrow,Fairbanks North Star Borough MayorLuke Hopkins, Denali Borough MayorClay Walker, Matanuska Susitna BoroughMayor Larry DeVilbiss of Palmer, Municipality of Anchorage Mayor Dan Sullivanand Kenai Peninsula Borough Mayor Mike Navarre of Soldotna.

Appointed to the public seats are Northwest Arctic Borough Mayor Reggie Jouleof Kotzebue; Robert Venables of Haines, the energy coordinator for the SoutheastConference; and Robert Bartholomew, finance director for the City and Borough ofJuneau.

The board, which the governor established by administrative order in March,will address municipal concerns around property taxes and impact payments for theproposed Alaska liquefied natural gas project.

The heads of agreement for the project calls for payments in lieu of propertytaxes, and for the governor to consult with affected municipalities on property taxes.In hearings on Senate Bill 138, the enabling legislation for state equity participationin the project, municipalities objected to the PILT proposal and demanded a role innegotiations for the project.

—KRISTEN NELSON

The board, which the governorestablished by administrativeorder in March, will addressmunicipal concerns aroundproperty taxes and impactpayments for the proposed

Alaska liquefied natural gasproject.


Gas price hike comesdown to accountingWarm winter and spring caused Enstar to overestimate gasdemand, leaving a deficit in utility’s gas purchase, sale balance


Customers of Enstar Natural Gas Co.,the main Southcentral Alaska gas

utility, may be shocked to see an increasefrom $4.45 to $7.67 per thousand cubicfeet in the cost of the gas that they use,starting on July 1. But this apparent pricehike results essentially from unexpectedlywarm winter weather and the accountingmechanism whereby Enstar passes thecost of gas that it purchases from gas pro-ducers through to gas consumers, JohnSims, Enstar’s director of business devel-opment, explained to Petroleum News onJuly 2. The actual prices that Enstar, andhence its customers, pay for gas suppliesare set in a series of contracts, none ofwhich are currently changing.

To ensure the availability of gas fromproducers, Enstar has to make quarterlygas demand forecasts, committing pay-ments to the producers based on thoseforecasts and using the estimated volumerequired from each gas supply contract tocompute a gas price to charge gas con-sumers. But the payments that Enstarreceives from its customers during eachquarter are based on actual gas usage, noton forecasts. And, since the actual demandnever equals the forecast demand, there isalways a quarterly discrepancy betweenwhat Enstar commits to pay for gas andwhat the utility receives in payments fromits customers. The utility rolls this dis-crepancy forward from one quarter to the

next, as a positive balance if, cumulative-ly, payments for gas exceed receipts fromcustomers, or a negative balance if theutility has received more than it has paid.

Each quarter Enstar tries to move thisbalance towards zero by adjusting theprice that it charges its customers for gas,moving the price up in the event of a pos-itive balance, and down for a negative bal-ance. Over multiple quarters, everythingwill balance out, with customers ultimate-ly paying what the producers charged forthe actual gas that was used.

Essentially, Enstar passes the cost ofthe gas through to its customers, with theutility making its profits from its gastransportation and delivery services, andnot from the sale of gas.

With the winter weather of the firstquarter of 2014 being unusually warm,Enstar overestimated the gas demand forthat quarter and then compensated with anextremely low gas price in the secondquarter, Sims explained. Then, with con-tinuing warm weather and resulting lowcustomer gas bills, Enstar ended up with acumulative deficit of about $7 million inthat rolling quarterly balance.

Recovering that large deficit in the bal-ance requires the substantial price rise thatcustomers are now seeing. However, asthe balance normalizes, customers maysee a slight decrease in the gas price in thefourth quarter, Sims explained. l

http://www.umalaska.com

http://www.magtecalaska.com


SALMON & SIDING & CARS

W E ’ R E O F F T O R U R A L A L A S K A

WWW.NAC.AERO • (800) 727-2141 •

OHMY!

is supplying 37,500 barrels per day, or atotal of 410 million barrels, of heavycrude over 30 years as feedstock for therefinery in lieu of oil sands royalties itwould otherwise have collected.

Analysts have consistently arguedthere was no chance the refinery — ajoint venture by North West Upgradingand Canadian Natural Resources —would go ahead without the govern-ment’s backing, although Premier DaveHancock has insisted the facility remainsa viable development for the province.

But members of opposition parties inthe provincial legislature have describedthe facility as “corporate welfare.”

The refinery is due to start refining75,000 bpd of bitumen in September2017, a year behind schedule. Even if thepartners do take the next design step to150,000 bpd, the refinery will still be oneof the smallest in Canada.

—GARY PARK


PAY UP TIME

LAND & LEASINGNo substantial new info for fall sales

The Alaska Department of Natural Resources Division of Oil and Gas hasfound no substantial new information for the state’s 2014 Beaufort Sea, NorthSlope and North Slope Foothills areawide oil and gas lease sales.

A call for new information for the sales was issued in March. The decision, signed by DNR Commissioner Joe Balash in late June, respond-

ed to comments from ConocoPhillips Alaska, among them a recommendation thatthe division offer nine-section, 5,760-acre tracts or four-section, 2,560-acre tracts,as it has traditionally done, rather than subdivisions. ConocoPhillips said thesmaller offerings result in greater administrative burden and potential legaldescription errors.

The response in the decision was that the comment related to the administra-tive lease sale process, not substantial new information, but that the divisionwould consider the comment when preparing terms and conditions for the leasesales.

The state began dividing 5,760-acre North Slope tracts into four parcels, each1,440 acres, in 2011, in response to leasing for unconventional development.Division of Oil and Gas Director Bill Barron told Petroleum News in the fall of2011, when that change was announced, that because one well holds a lease andin unconventional plays like shale more wells are required for development, theidea is that leasing in smaller acreage sizes would increase activity and comple-tion.

Barron said that in trying to work through issues of unconventional develop-ment and how wells do and do not connect and how to manage the land, the divi-sion decided that breaking leases into smaller tracts would give everyone a betteropportunity from the development standpoint.

The change followed the 2010 North Slope areawide lease sale, when GreatBear Petroleum picked up more than 500,000 acres south of Kuparuk andPrudhoe Bay and announced plans to use horizontal drilling and fracking to pro-duce oil from source rocks.

—KRISTEN NELSON


Osum Oil Sandsmakes bold moves


O sum Oil Sands, a privately ownedstartup with big plans, is taking

advantage of Shell’s push to unload aboutUS$15 billion worth of assets.

Chaired by former Suncor EnergyChief Executive Officer Rick George,Osum is paying C$325 million for Shell’sOrion project, a steam-driven operationthat delivered an average 6,700 barrelsper day in the first quarter.

If the transaction goes through, Osumwill have some cash flow to fuel its line-up of six other projects that have potentialproduction capacity totaling more than500,000 bpd and are scheduled to comeon stream over the next six years.

Orion is located about 10 miles south-west of Osum’s 35,000 bpd Taiga projectwhich recently gained regulatoryapproval in Alberta’s Cold Lake regionand is due on-stream in 2016.

Osum Chief Executive Officer SteveSpence said the two operations will even-tually be linked up “to build a significantproduction platform” in the Cold Lakearea.

Osum’s only existing bitumen produc-tion comes from its Saleski joint venturewith Laricina Energy in the Grosmontcarbonate play, in which it has a 40 per-cent working interest. The JV is designedto yield a net 115,000 bpd for Osum.

To help pay for the deal, Barclays andGoldman Sachs have committed creditfacilities of US$225 million, with the bal-ance of the purchase coming from cash onhand and from existing shareholders.

The company is backed by such pri-vate equity players as Warburg Pincus,Blackstone Group, BlackRock, KernPartners, Korea Investment Corp. and theinvestment arm of the Singapore govern-ment.

Shell reducing footprintShell acquired Orion through its

C$2.4 billion acquisition of BlackRockVentures in 2006.

It sought buyers two years ago, butpulled the offering a year later when noneof the bids matched its view of the value.

Shell announced plans early this yearto reduce its footprint in Western Canadaby half, starting with the sale in May ofconventional gas producing properties inwestern Alberta to Qatar Petroleum forC$50 million. Other potential divesti-tures could involve the GroundbirchMontney properties in northeasternBritish Columbia and the DeepBasin/Fox Creek assets in westernAlberta.

Shell is also scaling back its interestsin offshore Nova Scotia by reducing itscapital costs in the deepwater Shelburnebasin.

It has farmed out non-operating stakesof 30 percent to ConocoPhillips and 20percent to Suncor, while retaining anoperated 50 percent working interest insix exploration licenses, which cover 180miles offshore in water depths of 1,600-11,500 feet.

Shell obtained four of the licenses in2012 and the other two in 2013 — all ofthem carrying a six-year term — for acombined work commitment of C$998million.

It conducted a 3-D seismic shoot lastyear cover 7,662 square miles and plansto further assess potential drilling loca-tions through a seabed survey this year.

Pending regulatory approval, the firsttwo wells are scheduled for spudding inthe second half of 2015. l

Osum is paying C$325 million forShell’s Orion project, a steam-

driven operation that delivered anaverage 6,700 barrels per day in

the first quarter.

http://www.nac.aero

http://www.arcticspine.com


A lthough not the largest of the world-class gas fields in Alaska’s Cook Inlet

basin, the Kenai gas field was the first ofthe major gas fields to be discovered. Thediscovery came in 1959, just a couple ofyears after that of the Swanson River oilfield, during a search for oil in the basin.And, since going into production in 1961the field has delivered more than 2.4 trillioncubic feet of gas, according to a paper aboutthe field by Jennifer Enos and Brook Maier,published recently by the AmericanAssociation of Petroleum Geologists in ana memoir on the oil and gas fields of theCook Inlet basin.

The discovery well for the field, origi-nally called the Kenai Unit No. 1 but nowcalled the Kenai Unit 14-6, was spud at thecrest of a geologic structure identified fromseismic data and situated to the south of thetown of Kenai, on the Kenai Peninsula.Drilled to a depth of 15,047 feet, seekingoil in the deep Hemlock formation, the wellencountered major quantities of gas in therelatively shallow Sterling formation, Enos

and Maier wrote.

Gas market neededWith the discovery of a large field hold-

ing almost pure methane, companies start-ed seeking markets for gas. Union OilCompany of California and Ohio Oil Co.,the discoverers of the field, partnered withAnchorage Gas to build a pipeline fordelivering gas into Anchorage. AnchorageGas later became Enstar Natural Gas Co.,the main Southcentral Alaska gas utility,Enos and Maier wrote.

But, with gas production exceedinglocal utility needs, the construction of theKenai-Nikiski pipeline allowed the start ofdelivery of gas to the Swanson River fieldin 1967 — the gas was used for pressuremaintenance in the Swanson River oilreservoir. In 1969 the export of gas as liq-uefied natural gas began to Japan, from anewly constructed export facility atNikiski. And the construction by Union Oilof a fertilizer plant at Nikiski provided anadditional market for Kenai gas. AgriumInc. later purchased the fertilizer plant.

Eventual declines in Cook Inlet gas pro-duction, including that of the Kenai field,

led to the mothballing of both the fertilizerplant and the LNG plant, although, with aresurgence of the Cook Inlet gas industry,the LNG plant has recently re-opened.

Self-contained systemThe Kenai gas field forms its own self-

contained petroleum system, with the rocksthat source the gas and the rock reservoirsthat hold the gas all located within asequence of strata of Tertiary age, Enos andMaier wrote. The field occupies a large,elongated dome-like geologic structurewhich has acted as a trap for the field’s gas.However, some gas has also becometrapped in isolated sand bodies, in some ofthe more discontinuous sands, the authorswrote.

The gas is biogenic in origin, generatedfrom the microbial decomposition oforganic material in the abundant coal seamsand organic-rich mudstones found in theTertiary sequence. The coal seams andmudstone layers act as barriers to gasmigration, thus acting as seal rocks for thefield’s hydrocarbon traps.

The Sterling formationThe Sterling formation in which gas was

originally discovered is the youngest andshallowest of the productive rock intervalsin the field. The Sterling in the Kenai gasfield consists of 11 distinct sands in fiveseparate gas pools, with each pool repre-senting a group of sands that are in pressurecommunication with each other. The for-mation accounts for 1.8 trillion cubic feet ofthe field’s overall gas production, Enos andMaier wrote. However, one of the pools,pool six, is now used as a reservoir for gasstorage, the authors wrote.

As appears to be the case with all of theTertiary rocks in the Cook Inlet basin, thesediments that ultimately formed theSterling in the Kenai field were laid downon land from a system of sediment-bearingrivers. In the Kenai field the Sterling sandswere deposited from meandering streams,with mudstones and coal forming in areasoutside active river channels.Consequently, while the sands tend to varyin thickness and extent, in general the

Sterling sands are quite continuous andform the highest quality and most laterallyextensive reservoirs in the field, Enos andMaier wrote. The sands, which can be morethan 200 feet thick in their thickest parts,are friable, with little cementation.

Sterling production peaked in 1983 anddeclined steeply after that, Enos and Maierwrote.

The Beluga formationThe Beluga formation, underneath the

Sterling, consists of more than 2,000 feet ofsediments deposited from a complex sys-tem of streams and out-washes over ancientplains. Unlike the Sterling, whose sedimentappears to have originated from a volcanicarea to the west, the sediments that formedthe Beluga originated from metamorphosedsedimentary rocks to the east. The sandbodies that form gas reservoirs range fromcontinuous lenses in the upper Beluga tothin, discontinuous units in the middle andlower sections of the formation.

The upper part of the Beluga contains 13distinct sand units in a 700-foot section,with this part of the field having a similarproduction history to that of the Sterling.But reservoir quality is poorer in the middleand lower parts of the Beluga and the sandstend to be relatively thin and discontinuousin this part of the section. One particularchallenge in this part of the field is the dif-ficulty of imaging the relatively small sandbodies from seismic data. And the upperpart of the Tyonek formation, below theBeluga, is similar to the lower Beluga —more than 30 individual gas-bearing sandshave been identified in the section, from themiddle Beluga down through the upperTyonek, Enos and Maier wrote.

To improve gas production from themultiple sand bodies in the Beluga andupper Tyonek, Marathon Oil Co., operatorof the field for many years, devised what itcalled the Excape technology, a well com-pletion technology that enables well perfo-ration and fracturing stimulation for indi-vidual sands. And, with those individualsands rarely traceable through the subsur-face, reservoir modeling and reserve esti-mation tend to use statistical techniques andto rely on performance data, Enos andMaier wrote.

Despite the challenges of the middleBeluga, the lower Beluga and the upperTyonek sands as productive gas reservoirs,the sands have cumulatively produced anestimated 217 billion cubic feet of gas sincefirst being developed in 1977, Enos andMaier wrote.

Deep TyonekIn the Cook inlet basin, the lower part of

the Tyonek formation, referred to as the“Deep Tyonek” tends to hold oil but in theKenai field it only contains gas. Reservoirquality is much better than in the upper partof the formation. And with sands havingbeen laid down from meandering rivers,individual sand bodies can reach thickness-es of up to 50 feet and they tend to be later-ally extensive. The Deep Tyonek has yield-ed 206 billion cubic feet of gas since pro-duction from this section of the field startedin 1968, Enos and Maier wrote.

Given the differing characteristics ofdifferent reservoir sands within the field,production from different reservoirs tend tomeet different market needs — steady pro-duction from the Beluga and Tyonek tends


The first of the Cook Inlet giantsAlaska’s Kenai gas field has delivered more than 2.4 trillion cubic feet of dry natural gas since going into production in 1961


Expro’s business is well fl ow management, providing the products and service you need to measure, improve, control and process fl ow from high-value oil and gas wells. We provide tailor-made solutions across the lifecycle of a well, from exploration and appraisal to abandonment.In Alaska our expertise includes:• Well Testing

• Electric Line

• Downhole Video Services

• Mechanical Caliper Services

Contact:

Telephone: 907-751-8700Email: [email protected]

www.exprogroup.com

Expro Delivers well fl ow management

Anchorage Honolulu Los Angeles

• Commercial Diving• Marine Construction Services• Platform Installation, Maintenance and Repair• Pipeline Installation, Maintenance and Repair• Underwater Certified Welding• NDT Services• Salvage Operations• Vessel Support and Operations

• Environmental Services• Oil-Spill Response, Containment and Clean-Up• Hazardous Wastes and Contaminated Site Clean-

Up and Remediation• Petroleum Vessel Services, e.g. Fuel Transfer• Bulk Fuel Oil Facility and Storage Tank

Maintenance, Management, and Operations

American MarineServices Group

6000 A Street, Anchorage, AK 99518

907-562-5420Deadhorse, AK

907-659-9010www.amarinecorp.com • www.penco.org

[email protected]

see KENAI GAS FIELD page 12

http://www.amarinecorp.com

http://www.exprogroup.com


WITH FLYAWAY REWARDS POINTS

EARN 10 POINTS

EVERY 200 POINTS

Some restrictions apply. See website for details. Points not awarded on FlyAway Rewards tickets. Some services are provided by other airlines in the Ravn family.

FAI

ARCTOS,LLC Arctic Regulatory Compliance

and Technical Oilfield Services

Spill Prevention and Response

Planning Specialists

www.arctosak.com

(907) 632-1006

Oil Discharge Prevention and Contingency Plans HSE Program Development, Management and Compliance Waste Management Planning SPCC and Facility Response Plans Incident Command Systems Support Staffing and Training Imaging and GIS Mapping Systems API Certified Inspections - Tanks and Piping AWS Certified Welding Inspector

130 W. International Airport Road, Suite R, Anchorage, AK 99518

FINANCE & ECONOMYCIRI wants Kenai Loop cases to proceed

Cook Inlet Region Inc. believes a pair of legal cases over the Kenai Loop fieldshould be resolved before operator Buccaneer Energy Ltd. completes its bank-ruptcy proceedings.

The Alaska Native corporation has asked the U.S. Bankruptcy Court for theSouthern District of Texas to allow two cases concerning the onshore natural gasfield to continue.

The cases concern correlative rights at the field, which CIRI believes is “essen-tial” for determining how Buccaneer and its eight affiliate companies will sell itsassets and distribute the resulting funds. “The debtors cannot, for example, effec-tively market assets to third parties in connection with the sale process proposedin the sale motion, or seek outside financing, unless and until the appropriate allo-cation of subsurface mineral rights for the Kenai Loop gas field is resolved,”attorneys for CIRI wrote in a July 1 motion.

Damages sought for drainageCIRI is seeking damages against Buccaneer in Alaska State Court for claims

of illegal drainage at Kenai Loop. In April 2014, the court stayed its decision toallow an Alaska Oil and Gas Conservation Commission case to conclude on pool-ing issues at the field.

In late May, the AOGCC required Buccaneer to set up an escrow account tocollect proceeds from two producing wells at the field while the cases proceed.The order required Buccaneer to establish the account by June 1 and start makingdeposits June 10.

The AOGCC also proposed forced pooling or unitization to resolve future dis-putes. The area in question also includes state of Alaska and Alaska Mental HealthTrust leases.

Buccaneer filed for bankruptcy protection on May 31 and is proposing an auc-tion of its Alaska assets in early August, a proposal that the court has yet toapprove or reject.

Also challenging saleCIRI is also challenging a point in the proposed sale.In a motion to schedule the proposed auction, Buccaneer included its CIRI

lease among the potential assets to be made available, noting that the lease was“pending litigation.”

CIRI wants the bankruptcy court to remove its lease from the assets madeavailable at the auction, citing an Alaska State Court ruling that the lease expiredby Jan. 9, 2013.

—ERIC LIDJI

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

Coalition asks touphold Quality BankThree producers, a refiner and FERC staff believe FERC wasright in preserving the existing methodology despite protests

By ERIC LIDJIFor Petroleum News

The three owners of the trans-Alaskaoil pipeline, a pair of third-party

users of the pipeline and Federal EnergyRegulatory Commission staff want regu-lators to uphold their decision to keep theexisting methodology for determiningpayments to the Quality Bank.

The state of Alaska and refiners FlintHills Resources Alaska Inc. and PetroStarInc. had opposed the FERC decision, say-ing it would distort the Alaska refiningmarket.

The case stemmed from a complaintFlint Hills made against the three ownersof the pipeline, saying the existingmethod for determining Quality Bankpayments was outdated because it under-valued Resid, a residual product leftbehind after lighter petroleum productshave been distilled from crude oil. FERCdismissed the complaint on technicalgrounds, but launched an investigationinto the matters Flint Hills raised.

The investigation, though, upheld theexisting Quality Bank methodology.

The 800-mile pipeline co-minglesshipments from numerous companies.The Quality Bank system prevents oil

companies from profiting when they shiplower quality crude through the pipeline.Without such a mechanism, a companyshipping less-than-average crude throughthe pipeline would unfairly collect aver-age crude from the other end.

Alternative can’t be proposedAccording to the state, the FERC

administrative law judge overseeing thecase determined that the parties could notchallenge the Quality Bank methodologyby proposing a superior alternative, butonly by highlighting existing deficien-cies. The state worried this would codify“competitive distortions” in an alreadyfragile industry.

The three parties also challenged howthe methodology values Resid, whichinvolves a series of actual and hypotheti-cal appraisals of processing costs andmarket conditions.

BP Exploration (Alaska) Inc.,ConocoPhillips Alaska Inc. and ExxonMobil Corp., in separate filings, and theproducer Anadarko Petroleum Corp. andthe refiner Tesoro Alaska Corp. in a jointfiling and FERC trial staff all opposed thechallenge, saying Flint Hills bears theburden of proof for determining that the

see QUALITY BANK page 12

http://www.arctosak.com

http://www.flyravn.com


Some things can wait, others can’t. For Alaska contractors

needing to meet tight timelines and protect sensitive cargo,

Totem Ocean is their first call.

We specialize in white glove service for high priority cargo,

can easily accommodate oversized and over dimensional

shipments and are the fastest ocean carrier for panic cargo.

Our logistics experts help create creative and cost-effective

plans to meet our customers’ needs.

With 37 years of the best on time record in the trade, Alaska

counts on Totem Ocean to be on time, every time.

On time, every time.

www.TotemOcean.com 800.426.0074

methodology needs to be updated.“We are the only participant without a

financial (or similar) interest at stake,”Kenneth M. Ende, counsel for the com-mission trial staff, wrote in a June 30 fil-ing, responding to criticisms that FERCstaff “took a passive role” in the proceed-ings. “We represent only the public inter-est. Our role is objectively to review andevaluate the evidence and develop a posi-tion on the issues consistent with applica-ble Commission and judicial precedent.That objective review led to the conclu-sion that the Exxon Mobil Corporation,ConocoPhillips Alaska Inc. and TesoroAlaska Company and AnadarkoPetroleum Corporation presented over-whelming evidence that (Flint HillsResources) and (PetroStar) failed todemonstrate that the existing (QualityBank) Formula is unjust and unreason-able. l


QUALITY BANK


AOGCC puts KenaiLoop hearing on holdCommission makes change in Buccaneer escrow requirement; defersgas field unitization action following company’s bankruptcy filing

By KRISTEN NELSONPetroleum Nelson

The Alaska Oil and Gas ConservationCommission put its Kenai Loop uniti-

zation hearing on hold in a brief hearingJuly 7 due to the Chapter 11 bankruptcy fil-ing by Buccaneer, the Kenai Loop operator.The bankruptcy petition was filed May 31in the U.S. Bankruptcy Court for theSouthern District of Texas (see story in thisissue and previous Petroleum News cover-age of the bankruptcy).

In the notice for the hearing commissionChair Cathy Foerster said the commissionproposed to “compel pooling and/or uniti-zation of the Kenai Loop Gas Field in orderto protect the correlative rights of the oper-ator and landowners.”

Foerster said at the scheduled July 7hearing that all parties to the proceeding hadagreed it was appropriate hold off on thehearing until the bankruptcy court stay waslifted.

The commission has been hearing KenaiLoop issues since last August when CookInlet Region Inc. appealed a spacing excep-tion requested by Buccaneer for a KenaiLoop well.

Buccaneer is producing natural gas fromwells on Mental Health Trust acreage, but inthe course of the hearings all parties —Buccaneer, the Mental Health Trust, CIRIand the state of Alaska — agreed that thewells were draining acreage from all threelandowners. Buccaneer has been makingroyalty payments only to the Mental HealthTrust.

Buccaneer requests escrow changeOn May 22 the commission ordered

Buccaneer to establish an escrow accountfor future revenues from the Kenai Loopfield.

Buccaneer responded to that order May29, asking that payments into an escrow

account be timed to coincide with the pay-ments Buccaneer receives for natural gasfrom the field. The commission’s orderrequired that payments be made into theescrow account no later than the 10th day ofeach month beginning in June, with thedeposit to equal 100 percent of total gassales from wells at the field during the pre-ceding month multiplied by the prevailingvalue of Cook Inlet gas published by theAlaska Department of Revenue, less operat-ing expenses.

Buccaneer’s response said it had threegas sales contracts with Alaska Pipeline Co.and under the provisions of those contractsBuccaneer does not receive payment for gasuntil on or about the 25th day of the follow-ing month.

Buccaneer requested that the commis-sion modify its order to provide that it makeits deposit into the escrow account on orbefore the last business day of the month.

The commission gave other parties untilJune 9 to respond.

CIRI responded that the Chapter 11bankruptcy petition filed by Buccaneer“automatically stays the commencement orcontinuation of a judicial, administrative, orother action or proceeding againstBuccaneer that began before the filing ofthe bankruptcy case,” and said that neitherCIRI nor any other party would be able torespond to Buccaneer’s motion pendingfurther order of the bankruptcy court. l

Foerster said at the scheduled July7 hearing that all parties to theproceeding had agreed it wasappropriate hold off on the

hearing until the bankruptcy courtstay was lifted.

GOVERNMENTNew council for Alaska geospatial data

Gov. Sean Parnell has signed a memorandum of agreement, establishing theAlaska Geospatial Council, to coordinate Alaska digital mapping and the collection ofgeospatial data relating to the state. The council, with co-chairs from the AlaskaDepartment of Natural Resources and the Alaska Department of Transportation andPublic Facilities, and with representation from several government agencies, theUniversity of Alaska and Alaska Native corporations, will take over an existingstatewide digital mapping initiative and expand that initiative to integrate geospatialdata into the mapping effort.

“The purpose of the council is to integrate geospatial efforts in Alaska, with theintent to eliminate unnecessary taxpayer expense and redundant staff activity acrossall agencies,” according to a news release from the Department of Natural Resources.“The council will focus on modernizing Alaska’s geospatial data holdings whileenhancing data sharing and making the data holdings broadly available to the public.”

According to information on the new council’s website, the current map of Alaskais 50 years old, does not meet modern accuracy standards and does not support mod-ern electronic information management practices. The existing initiative, an ad-hocprogram known as the Statewide Digital Mapping Initiative, which the new councilreplaces, has been on track to complete a base digital map of Alaska, the memoran-dum of agreement for the new council says.

—ALAN BAILEY

to meet base-load gas demand, while thehigher gas deliverability of the Sterlingtends to be more suited to support the highswings in utility gas demand during theAlaska winters, Enos and Maier wrote.

And, through more than 50 years of con-

tinuous operation, supported by the ingenu-ity of new development technologies, theKenai gas field has provided energy forSouthcentral Alaska, supporting manyjobs and generating government rev-enues, Enos and Maier wrote. l


KENAI GAS FIELD

http://www.alaskatextiles.com

http://www.totemocean.com

By KRISTEN NELSONPetroleum News

North Sea Brent crude oil spot pricespeaked for the year at more than

$115 per barrel June 19, the U.S. EnergyInformation Administration said July 8 inits June Short-Term Energy Outlook.

EIA attributed the spike primarily toupward price pressures due to unrest inIraq.

The North Sea Brent spot price aver-aged $112 per barrel in June, up from $110per barrel in May. June was the 12th con-secutive month in which the Brent averagewas between $107 and $112 per barrel, theagency said.

Brent is projected to average $110 perbarrel this year and $105 per barrel in 2015,up $2 and $3 per barrel, respectively, fromEIA’s May projection.

The West Texas Intermediate discountto Brent is projected to average $9 per bar-rel in 2014 and $10 per barrel in 2015.

In addition to conflict in Iraq, EIA saidrecord-high levels of Chinese crude oilimports and ongoing delays in Libyan oilexports also contributed to upward pricepressure.

The WTI spot price averaged $106 perbarrel in June, up from $102 per barrel inMay, driven partly by “relocation of crudeoil to refining centers along the Gulf Coastthrough new pipelines,” EIA said. Crudeinventory levels at Cushing, Oklahoma, thedelivery point for WTI, “have fallen bymore than half since the start of the year,from 42 million barrels on January 24 tobelow 21 million barrels on June 27, thelowest level since November 2008,” EIAsaid.

The discount of WTI to Brent averagedmore than $13 per barrel from Novemberthrough January, and fell to $6 in June.

EIA said the U.S. CommerceDepartment’s Bureau of Industry andSecurity has authorized two companies toexport “stabilized lease condensateprocessed in a distillation tower.”

US crude production upEIA said U.S. crude oil production is

expected to average 8.5 million bpd thisyear and 9.3 million bpd in 2015, up from7.4 million bpd in 2013. “The 2015 fore-cast represents the highest annual averagelevel of oil production since 1972,” EIAsaid.

Natural gas plant liquids production isexpected to increase to 3 million bpd in2015, up from 2.6 million bpd in 2013.

Overall, the share of U.S. liquid fuelsconsumption met by net imports fell from60 percent in 2005 to an average of 33 per-cent in 2013 and EIA is projecting the netimport share to decline to 22 percent in2015, the lowest import rate since 1970.

The highest average U.S. productionlevel was 9.6 million bpd in 1970.

EIA said recent U.S. production growthhas been from lighter, sweet crude fromtight resource formations, with roughly 96percent of the 1.8 million bpd increasefrom 2011 to 2013 consisting of “sweetgrades with lighter API gravity of 40 orabove.”

EIA said it is forecasting that the U.S.“supply of lighter API gravity crude willcontinue to outpace that of medium and

heavier crudes,” with more than 60 percentof the agency’s forecast production growthfor 2014 and 2015 consisting of “light,sweet grades with API gravity of 40 orabove.”

Natural gasU.S. natural gas marketed production is

projected to grow by 4.1 percent this yearand 1.2 percent in 2015, EIA said.

“Rapid natural gas production growth inthe Marcellus formation has contributed tolow natural gas forward prices in theNortheast, and as a result new infrastruc-ture has been proposed to take gas to othermarket regions.”

The eastward-flowing Rockies ExpressPipeline began service in June on itsSeneca Lateral pipeline, which takesMarcellus gas westward to the Midwest.

EIA said Rockies Express’ parent com-pany, Tallgrass Energy, “plans to add bidi-rectional capability on a significant portionof (Rockies Express Pipeline)’s eastern-most segment.”

EIA said growing domestic natural gasproduction is expected to put downward

pressure on imports from Canada, with netimports of 3.7 billion cubic feet per day thisyear and 3.1 bcf per day in 2015 — the2015 level would be the lowest since 1987.

Liquefied natural gas imports have fall-en in recent years because higher prices inEurope and Asia are more attractive to sell-ers than the relatively lower U.S. prices.Several companies are also planning toexport LNG from the U.S., with CheniereEnergy’s Sabine Pass facility expected tobe the first to liquefy natural gas in theLower 48 for export. That facility is sched-uled to come online in stages beginningnext year.

The natural gas spot price averaged$4.59 per million Btu at Henry Hub inJune, and EIA said it expects spot prices toremain near current levels until the start ofthe next winter heating season.

Henry Hub natural gas spot prices areexpected to average $4.77 per million Btuthis year and $4.50 per million Btu in2015. l

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

EIA: Brent crude spot price peaks in JuneCombined US, Canada liquids production projected to grow by 1.6 million bpd in 2014, majority of non-OPEC increase of 1.7 million bpd


Serving Alaska for Over 25 Years

(907) 349-2931

Henry Hub natural gas spot pricesare expected to average $4.77 per

million Btu this year and $4.50per million Btu in 2015.

http://www.securityaviation.biz

http://www.littleredservices.com


EXPLORATION & PRODUCTIONCaelus approved as Oooguruk operator

Caelus Energy Alaska has been approved as the operator of the North SlopeOooguruk unit.

Caelus acquired Pioneer Natural Resources Alaska in a $300 million deal thatclosed April 15, a deal which replaced a mid-sized independent operator with asmall independent operator.

Alaska Division of Oil and Gas Director Bill Barron said in a July 1 letter toCaelus that the division finds Caelus “qualified to fulfill the duties and obligations”in the Oooguruk unit agreement, and approves Caelus as successor unit operator.

Pioneer purchased the Oooguruk leases in the nearshore waters of the BeaufortSea in 2002 from Armstrong Resources and put the field online in 2008. WhenPioneer Chairman and CEO Scott Sheffield announced the sale last November, hesaid it represented a strategic move to focus Pioneer investment on shale develop-ment in Texas. Sheffield said Oooguruk holds the North Slope record for the short-est time from first oil discovery to first oil production.

Caelus has formed a strategic partnership with Apollo Global Management, aninternational investment management company, which has said it intends to investup to $1 billion in Caelus for development of existing assets and to pursue acquisi-tions or additional investments.

—PETROLEUM NEWS

settle a long-running dispute with stateofficials.

The rate case is a direct result (and arequirement) of the settlement, but it alsoincorporates costs associated with anabandoned attempt to build a North Slopeliquefied natural gas plant to offset con-cerns about dwindling supplies in theCook Inlet basin.

Given the upheavals in the Interiorenergy market at the moment, includingstate-backed plans to truck LNG to theregion from a proposed North Slopeplant, Fairbanks Natural Gas said itexpects the proposed rates to be obsoleteby 2016, and also expects to file ratecases “on a frequent basis until things set-tle down, hopefully by the end of thedecade.”

A transitionThe rate case marks the beginning of a

transition for Fairbanks Natural Gas.After a supply disruption in Cook Inlet

in late 2006 threatened consumers inFairbanks, the RCA told FairbanksNatural Gas to find an alternative sourceof supplies and the company launched anambitious program to move its supply tothe North Slope by building a liquefiednatural gas terminal and establishing atrucking operation.

“While it may sound simple enough tobuild an LNG production facility on theNorth Slope and begin providing addi-tional gas supplies to Fairbanks, the real-ity is much different,” President DanBritton wrote in a recent affidavit sup-porting the rate increase.

For starters, Fairbanks Natural Gasspent more than two years negotiating asupply contract with one of the NorthSlope producers. Even with the contractin hand, the utility needed anchor tenantsto justify the cost of the facility. While theutility made some initial progress withGolden Valley Electric Association andFlint Hills Resources Alaska Inc., thosetwo large industrial users later split off todevelop a separate LNG facility.

At the same time, Britton said, a seriesof state and industry ventures to bringNorth Slope natural gas to Southcentralthreatened to make the Fairbanks NaturalGas proposal obsolete. Eventually,Fairbanks Natural Gas approached thestate about forming a public-private part-nership, which led to the passage of the$325 million Interior Energy Plan.

Opportunity for public financingThe plan presented an opportunity for

Fairbanks Natural Gas to get publicfinancing for the LNG plant, assistancewith the trucking operation and an expan-sion of its service area to include much ofthe Fairbanks North Star Borough.Considering the historically high cost ofheating oil compared to natural gas, thescenario would have certainly madeFairbanks Natural Gas a near-monopolyin the Interior heating market. The utilityvoluntarily accepted rate regulation, inpart, because monopolization would havemade regulation inevitable.

“(Fairbanks Natural Gas) alwaysthought that at some future time econom-ic regulation would be appropriate,”Britton wrote. “We thought, however, that(Fairbanks Natural Gas) would be subjectto regulation when it developed a muchlarger market share and its position in themarket was much more comparable to atypical gas distribution utility.”

Instead, though, the Alaska IndustrialDevelopment and Export Authority choseMWH Americas Inc. to be its private sec-tor partner for the LNG facility and theRegulatory Commission of Alaska gavethe municipal Interior Gas Utility a cer-tificate to operate in the those areas of theInterior where Fairbanks Natural Gas hadhoped to expand.

The requested rate increase would, inpart, cover the $5 million the companyspent on developing the abandoned NorthSlope LNG project over the past eightyears. The $5 million represents roughlyone quarter of the utility’s rate base,according to Britton.

Still needs suppliesThose setbacks have necessitated a

change of strategy, according to Britton. “While it was not initially our goal,

FNG is ready to accept economic andpolitical realities and transition towards amore traditional gas distribution companymodel, in which FNG’s primary role is toprovide rate regulated gas distributionservice,” Britton wrote.

This year and next year, FairbanksNatural Gas is adding 30 miles ofpipeline to its existing system, which willallow the utility to serve some 1,300 addi-tional customers.

Those customers, though, cannot jointhe system without supplies, Brittonnoted.

While Fairbanks Natural Gas intendsto purchase supplies from the proposedNorth Slope LNG plant being promotedunder the Interior Energy Plan, the suc-cess of the plant remains uncertain. If theprogram gets delayed, or is unsuccessful,Fairbanks Natural Gas would be unable


FNG RATE HIKE

see FNG RATE HIKE page 15

to add those customers unless it couldfirst find additional supplies.

Currently, Fairbanks Natural Gas pur-chases its supplies from its affiliated TitanAlaska LNG LLC, which holds a contractfor Cook Inlet supplies through March 31,2018, “and anticipates being able toobtain additional gas supplies after thatdate,” Britton wrote.

Last year, Fairbanks Natural Gas alsopurchased supplies from the Kenai LNGfacility, and the utility expects to do thesame over the next two winters, accordingto Britton.

Advantages to smaller operationBritton said his company would have

preferred to expand its role to include theupstream component of the supply chain,but acknowledged there were advantagesto its smaller operation. With an LNGplant in place, the utility would be able toavoid the financial and technical risks ofliquefying and transporting natural gas(although the utility would still have tobear the risk of re-gasifying the LNGonce it arrives in Fairbanks, a risk that tra-ditional pipeline-supplied utilities likeEnstar Natural Gas Co. are able to avoid).And, as a utility focused only on distribu-tion, Fairbanks Natural Gas won’t need toworry about the potential of a majorNorth Slope gas pipeline making theLNG plant irrelevant.

Still, Britton wrote, the return to regu-lation will bring challenges.

The reliance on LNG creates highercapital costs for Fairbanks Natural Gasthan for other, similar distribution compa-nies, he wrote. Those costs would be dif-ficult to recover if customers leavebecause of supply disruptions or competi-

tion from heating oil.Fairbanks Natural Gas is particularly

worried about large interruptible cus-tomers leaving the company if heating oilprices come down in the future. The utili-ty “could accept this risk when it was notregulated, because it could make up anylosses when heating oil prices increased,”Britton wrote. Over the long run, headded, Fairbanks Natural Gas may needto revise its terms for providing interrupt-ible service to address this imbalance.

When it expected to become an expan-sive monopoly, Fairbanks Natural Gasbelieved the costs of regulation would beoffset by the benefits of state financing.Whether the calculation remains valid isan open question. The proposed rateincrease, in part, offsets the cost ofpreparing the rate case, Britton wrote.But, on the other side, regulation allowedthe utility to secure a $15 million loanfrom AIDEA “on very generous terms.”

Why FNG lost twiceRegulation also highlights the com-

plexities of the Fairbanks Natural Gasbusiness model.

When the company started, it separat-ed its rate-regulated distribution operationand its unregulated LNG operations as away to seek different types of investorsfor each component of its business,according to Britton. When the companybecame exempt from rate regulation in2003, it combined the two operations forthe sake of convenience.

The return to regulation necessitated areturn to the original structure, Brittonwrote, which is why Fairbanks NaturalGas handed over the LNG operation toTitan last year.

“In hindsight,” Britton wrote, “I wishthat we had separated the businessesyears ago, and made a more completeseparation of ownership.” Fairbanks

Natural Gas thought common ownershipbetween its distribution and liquefactionentities would strengthen its applicationto expand its service area and its applica-tion to be the private sector partner for theInterior Energy Plan. “In retrospect, itseems clear that the common ownershipstructure hurt both its presentation to theRCA and its presentation to AIDEA.”

The RCA rejected the expansionrequest because the Fairbanks NaturalGas proposal relied too heavily on salesto Golden Valley Electric Association. IfFairbanks Natural Gas had been focusedsolely on providing distribution services,it wouldn’t have needed to worry abouthaving an industrial anchor, such as theInterior electric cooperative.

When it came to making a case toAIDEA, other Fairbanks utilities worriedabout Fairbanks Natural Gas being onboth sides of the negotiating table,according to Britton.

Cook Inlet pricesThe rate case also reveals some of the

intricacies of the Cook Inlet gas market.Fairbanks Natural Gas currently gets

the majority of its supplies through itscontract with Titan, but the utility fin-ished a contract with Aurora Gas LLC on

May 31. The Aurora contract sold sup-plies for $6 per thousand cubic feet,according to Fairbanks Natural Gas.

Now, Titan is acquiring its suppliesfrom Hilcorp Alaska LLC at a base priceof $6.86 per mcf and a swing price of$8.58 per mcf. Those rates will jump to$7.13 per mcf and $8.91 per mcf, respec-tively, next year, according to FairbanksNatural Gas.

Including associated operational andtransportation costs, Fairbanks NaturalGas expects to pay $15.06 per mcf underthe Titan contract for the remainder of theyear. By comparison, the company noted,its contract with ConocoPhillips for inter-ruptible supplies — which are usuallycheaper — from the Kenai LNG plant is adelivered price of $17.35 per mcf.

While Fairbanks Natural Gas had pre-viously adjusted its rates at will torespond to changing commodity prices inthe market, the proposed rate increasewould segment costs. The proposed rateswould include a component for fixedcosts and a Gas Cost Adjustment thatwould allow the utility to tinker its ratesas gas prices fluctuate. l


Community MeetingsAnchorage Community Meeting Date: Tuesday, July 15Time: 6-8 pm(Presentation at 6:30 pm)Location: William A. Egan Civic & Convention Center, Lower Level – Summit Hall 555 W. 5th Avenue, Anchorage

Fairbanks Community Meeting Date: Thursday, July 17Time: 6-8 pm(Presentation at 6:30 pm)Location: Wedgewood Resort - Gazebo Room1212 Wedgewood Drive, Fairbanks

You are invited to attend a community meeting to learn more about the Alaska

overview and share information about current studies. Join them for an evening of sharing and an opportunity to provide

Refreshments will be served.

For More In fo rm at io n (855 ) 550 -5445

/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /

Alaskacleanseas.org 907.743.8989 • Anchorage907.659.3205 • North Slope

ALASKA NORTH SLOPE SPILL RESPONSE

ACS provides world-class oil spill prevention and response

services to exploration and production companies. As a

not-for-profit cooperative, ACS’s 35 year performance as the

Arctic experts stands alone for delivering emergency and

environmental response services on the North Slope of Alaska.


FNG RATE HIKE

http://www.alaskacleanseas.org


Great Northern announces passing of John RiggsDave Jarrett, chief operating officer of Old Harbor Native Corp., said in an open letter to

customers and vendors July 2, “It is with a heavy heart I write to you today to inform youthat John Riggs, founder and president of Great NorthernEngineering, passed away from an apparent heart attack on June28, 2014. The impact of this loss will be felt for many years to come.

“John built an impressive legacy in Alaska through his variousroles in the community and on important projects such as the Trans-Alaska Pipeline, the Ted Stevens Anchorage International Airport,and the Port of Anchorage Valve Yard, to name just a few,” Jarrettsaid. “With his tireless work and ethical standards John built a solidcompany with a stellar reputation that gained him the respect andadmiration of those who had the pleasure of meeting him.

“In the six short months since we became John’s partner inGreat Northern Engineering, we have developed a deep respect andfriendship with him, his family, and the dedicated family of employ-ees at Great Northern Engineering. In these trying times, I know their deep bond will carrythem through.”

Jarrett said Dave Korpi, a senior mechanical engineer and 17-year veteran employee ofGreat Northern Engineering, has been named interim CEO. Jarrett said questions or con-

cerns going forward should be directed to Korpi at 907-745-6988 or at [email protected]. “We have a strong team at GNE and are committed to keeping business running

smoothly as we know John would have wanted,” Jarrett said. “As we search for a morepermanent solution, I want to assure you that business will continue as usual and we willcontinue to deliver quality work.”

ASRC board endorses Dan Sullivan for U.S. SenateMembers of the Arctic Slope Regional Corp. board of directors have taken the unique

step of endorsing a candidate for U.S. Senate, making their choice of Dan Sullivan knownafter a regularly scheduled meeting in Barrow. Sullivan’s military experience, responsibleenergy development record, his history of working with the North Slope on issues rangingfrom justice to energy, diplomacy at the U.S. State Department, his stance against domesticviolence, the importance he personally places on education and his commitment to Alaskamake him a strong and favorable candidate for U.S. Senate, the board said.

“It is a rare move for our board members,” said Crawford Patkotak, ASRC board chair-man. “We concluded that we believe in U.S. Senate candidate Dan Sullivan and his abilityto effectively engage all sectors of the Alaskan community to positively move Alaska for-ward.”

ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS

Companies involved in Alaska and northern Canada’s oil and gas industry

All of the companies listed above advertise on a regular basis with Petroleum News

AAcuren USAAECOM EnvironmentAggreko LLCAir LiquideAircaft Rubber Mfg. (ARM-USA)Alaska Air CargoAlaska Analytical LaboratoryAlaska Clean Seas (ACS) . . . . . . . . . . . . . . . . . . . . . . . . . . .15Alaska CommunicationsAlaska DreamsAlaska Marine LinesAlaska RailroadAlaska Rubber Alaska Steel Co.Alaska Textiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Alaska West ExpressAll Pro AlaskaAlpha Seismic CompressorsAmerican Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Arctic ControlsArctic FoundationsArctic Slope Telephone Assoc. Co-op.Arctic Wire Rope & SupplyARCTOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11ArmstrongAspen HotelsASRC Energy Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6AT&TAvalon Development

B-FBP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Baker HughesBald Mountain Air Service . . . . . . . . . . . . . . . . . . . . . . . . . .19Battelle AnchorageBombay DeluxeBrooks Range SupplyCalista Corp.Canadian Mat Systems (Alaska)Canrig Drilling TechnologyCarlile Transportation ServicesCCI Industrial Services LLCCGGCH2M HillClearSpan Fabric StructuresColville Inc.Computing AlternativesCONAM ConstructionConocoPhillips AlaskaConstruction Machinery IndustrialCook Inlet EnergyCraig Taylor EquipmentCrowley SolutionsCruz Construction

Delta LeasingDenali IndustrialDowland-Bach Corp.Doyon AnvilDoyon DrillingDoyon, LimitedDoyon Universal ServicesEgli Air HaulEngineered Fire & Safety . . . . . . . . . . . . . . . . . . . . . . . . . . .18Expro Americas LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10ExxonMobilF. Robert Bell and AssociatesFairweatherFive Star Oilfield ServicesFlowline AlaskaFluorFoss MaritimeFugro

G-MGBR Oilfield ServicesGCI Industrial TelecomGCR Tires & ServiceGlobal Diving & Salvage . . . . . . . . . . . . . . . . . . . . . . . . . . .17GMW Fire ProtectionGolder AssociatesGreer Tank & WeldingGuess & Rudd, PCHawk ConsultantsHDR AlaskaIFR WorkwearInspirationsIronclad Co.Judy Patrick Photography . . . . . . . . . . . . . . . . . . . . . . . . . .20Kakivik Asset Management LLCKenworth Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Kuukpik Arctic Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .19Last Frontier Air VenturesLister IndustriesLittle Red Services, Inc. (LRS) . . . . . . . . . . . . . . . . . . . . . . . .13Lounsbury & AssociatesLW SurveyLynden Air CargoLynden Air FreightLynden Inc.Lynden InternationalLynden LogisticsLynden TransportMagTec Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Mapmakers of AlaskaMAPPA TestlabMaritime Helicopters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3M-I SwacoMiller Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Motion Industries

N-PNabors Alaska DrillingNalco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18NANA WorleyParsonsNASCO Industries Inc.Nature Conservancy, TheNEI Fluid TechnologyNMS LodgingNordic Calista . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20North Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Northern Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Northern Electric Inc.Northrim BankNorthwest Technical ServicesOil & Gas SupplyOpti Staffing GroupPacWest Drilling SupplyPENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Pebble PartnershipPetroleum Equipment & ServicesPND Engineers Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Polyguard ProductsPRA (Petrotechnical Resources of Alaska) . . . . . . . . . . . . . .2Price Gregory InternationalRemote Access Technology (RAT) . . . . . . . . . . . . . . . . . . . .20Resource Development CouncilRavn Alaska (formerly Era Alaska) . . . . . . . . . . . . . . . . . . .11

Q-ZSAExploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Security Aviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Shell Exploration & ProductionSophie Station SuitesSourdough Express Inc.STEELFABStoel RivesTaiga VenturesTanks-A-LotTEAM Industrial ServicesThe Local PagesThink OfficeTotal Safety U.S. Inc.TOTE-Totem Ocean Trailer Express . . . . . . . . . . . . . . . . . . . .12Totem Equipment & SupplyTTT EnvironmentalUdelhoven Oilfield Systems ServicesUMIAQUnique Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Univar USA URS Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3UsibelliVerizonVigor AlaskaVolant ProductsWeston Solutions, Inc.

Oil Patch Bits

see OIL PATCH BITS page 19

JOHN RIGGS

ducers will take a step; Alaska will takea step; the producers will take a step andAlaska will take a step. SB 138 seems tobe that step Alaska is taking. Many whosupported the bill did so with skepticismand cautious optimism, their words. Itwasn’t so much directed at the bill as itwas past attempts. Can you relate to thatcautions optimism?

Parnell: Absolutely. I’ve lived here forabout four decades. Like many, I’ve seenprojects come and go. At the same time, Ibelieve we are on track to gettingAlaska’s gas to Alaskans first because wemade historic progress in doing so. Youmentioned SB 138. The significantannouncement now is we have a commer-cial agreement now, an alignment with allthe parties, so real work is beginning nowon engineering, design and environmentalfieldwork.

The state is now a full partner in theproject. That summer field season workhas commenced. So while many projectshave faltered in the past, I am cautiouslyoptimistic about this one because it’s thefirst time in our history when all the nec-essary parties for a project are aligned, allthe necessary parties are putting downtheir money and have agreed to worktogether for the next 18 months in thispre-FEED stage. The safeguard forAlaska is the commensurate proportionateapproach I spoke of. After 18 months ofwork that the Legislature has authorized,we will be able to take all of that workand show the Legislature and the publicwhat’s going on, so the accountability andtransparency is there. The Legislature,just like the boards of directors of the cor-porations who are parties to this, theLegislature can make a decision — aninformed decision — about whether andhow to progress. In other words, are wewilling to make the next financial com-mitment to go into FEED? These are thecommensurate proportionate steps thateach of the parties are taking together. Sofar we’ve reached a milestone by walkingand working together into pre-FEED.

Petroleum News: There’s been a lot oftalk about alignment, again somethingwe’ve heard before under another propos-al. Where do you believe your alignmentfirst began? Was it when the three NorthSlope producer CEOs met you inAnchorage or another time? A progres-sion of all of that?

Parnell: Alignment has been a progres-sion. The first phase of alignment beganwhen I brought the CEOs together. WhenI first started in this office, there was no

alignment on gas. In fact, I recall theDenali project was in the process of disin-tegrating and the companies were in dif-ferent orbits. Then through bringing thecompanies together, we’ve been able togain alignment first on Point Thomsonresolution because we need that as well asPrudhoe Bay for a large-volume line.Ever since Point Thomson was resolved,we had to reach alignment on a projectconcept selection. In other words the par-ties had to agree that this pipeline is goingto go from the North Slope to Nikiski, forexample, and the project concept is for anLNG project. So the parties had to getalignment on that. Now we have align-ment on moving into real engineering,real environmental field work in this pre-FEED stage. The alignment has beengrowing stronger but it’s been a step-by-step evolving alignment as the partiesbecome more and more confident that theproject can move to the next phase.

Petroleum News: With AGIA off thebooks, what value did AGIA have in thecurrent efforts moving forward and whatdoes TransCanada bring, if they don'thave a stake in the resource?

Parnell: TransCanada’s participation inthe Alaska LNG Project means greatermonetary return to the state. And,TransCanada is the only party alignedwith the state's interests in ensuring natu-ral gas resources beyond Point Thomsonand Prudhoe Bay get maximized forAlaskans’ benefit. TransCanada, like thestate of Alaska, is an expansion-mindedparty, an important partner to have earlyin the project.

Further, AGIA was essential to pro-moting alignment amongst all of the par-ties, as was the formation of the AlaskaGasline Development Corp. It was underthe AGIA license that the parties collabo-rated to develop a concept for an LNGproject after I asked them to shift focus toan LNG project.

Petroleum News: We talked about frontlines experience dating to the Murkowskinegotiations. One member of your admin-istration, Commissioner (Joe) Balash alsobrings those traits to the table. Most justsee him on television testifying and maynot know that. What do you think hebrings as you move forward with the LNGexport project?

Parnell: One of his benefits is that he’sbeen on earlier gas line discussions on thelegislative side as a staff member, plus thelast several years as DNR commissionerand before that as deputy commissioner.Whereas I in 2003 and 2004 had day-to-day experience in the executive branch,he’s been doing it for some time, for sev-

eral years as part of DNR. So he doesbring a wealth of knowledge both fromthe legislative branch and the executivebranch that are extremely valuable to thestate and to its people.

Petroleum News: His supporters in theLegislature cite a balance of a demeanorthat blends tenacity of a high school statechampion wrestler with the calmness andcomposure of a statesman. Does that playinto it?

Parnell: those traits you described arepossessed by Joe and possessed by theteam day in and day out. I also think it’simportant to point out the role of(Revenue) Commissioner Angie Rodelland (Deputy Commissioner) MikePawlowski. Those three in the role theyplay between tax issues, royalty issuesand negotiations on behalf of the state,they are stronger together than one indi-vidual. Alaskans are better off for theirserve.

Petroleum News: The argument inWashington to export LNG seems to begaining ground, at least in favor ofexporting. Does this help Alaska, or arewe still seen as a separate market?

Parnell: I think we’ve been able tomake a good case that Alaska is separate.We are not selling into the Lower 48 mar-ket. We would not put U.S. consumers atrisk to higher prices by our exporting gasto the Pacific Rim. At the same time, I dobelieve as Lower 48 consumers and mem-bers of Congress become more comfort-able with the economic benefits of beingpart of the global market in gas I thinkthat helps Alaska’s chances as well. I canalso make a case that this attitude doeshelp Alaska’s prospects as well.

Petroleum News: Also this session,after the Legislature pretty much wrappedup discussions on the LNG export project,you introduced legislation to boost thestate’s refining industry. It was kind oflast-minute work by the Legislature. Doyou see yourself taking a closer look atthe industry next session?

Parnell: From a national security per-spective and making sure we have jet fuelfor those Interior base facilities and air-planes, and from a job perspective, an in-state refining capability is hugely impor-tant to us. When we took action this pastyear — the administration and legislators— to assure a more healthy refiningindustry, I think we need more time to letthat play out. I understand one of thecompanies is already starting to investmore heavily in refining capacity in thisstate. So we’ll have to wait and see whathappens. At this point, I think we’vemade it clear a healthy refining industry isimportant to our state.

Petroleum News: Do you see FlintHills ever coming back to its old form?

Parnell: That requires a willing FlintHills. They made it very clear, they wantto be a terminal at this point. What I’mworking to do is make sure that other in-state refiners who want to invest andexpand their capacity can. Clearly we’vemade it possible for a purchaser of FlintHills to take advantage of those tax incen-tives as well. l

Editor’s note: See part 2 of this inter-view in the July 20 issue.


5304 Eielson Street • Anchorage, AK 99518 907.563.9060 • www.gdiving.com

COMMERCIAL DIVINGOFFSHORE SUPPORTMARINE CONSTRUCTIONENVIRONMENTAL SERVICESPROJECT MANAGEMENTLOGISTICAL SUPPORT

MORE THAN JUST A DIVING COMPANY


PARNELL Q&A

http://www.pndengineers.com

http://www.gdiving.com

oil by the end of 2013. In 2013 the fieldproduced oil at an average rate of 5,600barrels per day, the Tarn development plansays. In that year the field had 38 activeproduction wells and 23 active injectionwells. However, some development drillingscheduled for 2013 was deferred into 2014because of drilling rig issues, the plan says.

The plan says that, with recent studieshaving indicated some new developmentopportunities, both for infilling existingdevelopments and for developing theperimeter of the field, ConocoPhillips plansto drill four new wells and two sidetracks toexisting wells in 2014 and 2015. The wellswill involve horizontal and slanted drilling,while one well, a production well, isexpected to require multi-stage fracturing,the plan says.

The original development plan for Tarninvolved the injection of miscible injectant,a mixture of natural gas and natural gas liq-uids, into the field reservoir, to maintain

reservoir pressure while flushing oil fromthe reservoir rock. Although this type ofinjectant is often alternated with waterinjection in a process called water-alternat-ing-gas, or WAG, laboratory tests of rockfrom the Tarn reservoir indicated the likeli-hood of reservoir damage, should water beinjected, the plan says.

But the subsequent discovery of betterquality reservoir rock following somedevelopment drilling led to the implemen-tation of a full-scale WAG program, usingmiscible injectant. The use of this programin conjunction with a field simulationmodel has resulted in an effective responsefrom production wells, the plan says.

Reservoir simulationReservoir simulation studies are helping

understand the benefits both of continueddevelopment drilling and of changes to theenhanced oil recovery program at Tarn, theplan says. And a full-field model has beendeveloped for forecasting future productionand for identifying development opportuni-


907- 274-7973877-978-6265

www.efs-fire.com3138 Commercial Dr.Anchorage, AK 99501

eTTeProtection

our YYo

eamProtection

otalTTo

Installation & Service

Extensive North Slope field experience

ire Suppression SystemsF

ire & Gas Detection SystemsF

our CompYYo


pital projects group experienced inCa

Local UL cabinet fabrica

Explosion protection


ire Suppression Systems

ire & Gas Detection Systems

ce For Design,our Complete Sour


pital projects group experienced in

tioncabinet fabricaa

Explosion protection

ce For Design,

and marine systems experienceExtensive off-shore


end-users,

& Construction (EPC) companies,working with Engineering,

pital projects group experienced inCa

and marine systems experienceExtensive off-shore


and contractorsend-users,

& Construction (EPC) companies, Procurement,working with Engineering,

pital projects group experienced in

Anchorage, AK 995013138 Commercial Dr

www877-978-6265 907- 274-7973

Anchorage, AK 99501.3138 Commercial Dr

.efs-fire.comwww877-978-6265 907- 274-7973


SATELLITE FIELDSproject was “not likely to result in signif-icant adverse” impacts.

MKI is required to make statusupdates of environmental commitmentsand marine mammal observer reports thatwill be available to the public.

Those reports may provide informa-tion on sightings of whales and birds inoffshore areas that would not otherwisebe made public, while MKI will berequired to hold project update meetingswith interested communities.

First move in almost 30 yearsThere has been no announcement of

the schedule for the survey work.But the seismic plans are the first

industry move in almost 30 years afterexploration companies pulled out of theNunavut area in 1986 after posting 20discoveries, most of them in the Sverdrupbasin, a sedimentary formation that cov-ers about 200,000 square miles.

The finds were highlighted by threelarge deposits: Cisco, 1 billion barrels ofoil equivalent; Drake Point, 6 trillioncubic feet on Melville Island; and Heclain the Prince Gustaf Adolf Sea, 2 billionboe of oil and 10 tcf of gas.

But, beyond a handful of annual

demonstration shipments of crude, theremote region never came close to full-scale commercial development, despitegeological surveys that pointed to 67 bil-lion boe of resources in Nunavut from180 completed wells.

The geological surveys of Canada andthe United States estimate the territorycould hold recoverable resources of 9.2billion to 23 billion barrels of oil and 97.2tcf to 262.3 tcf of gas.

Concerns over the dangers of explo-ration in the area were heightened in 2011when S.L. Ross Environmental Researchwas commissioned by the NEB to assessoptions for cleaning up spills in Canada’sArctic offshore, including Davis Straitwest of Greenland’s Disko Bay.

The consulting firm said those optionswould be impractical 20 percent to 84percent of the time during the open-waterseason because of bad weather and seaice.

Against that backdrop, aboriginalcommunities in the High Arctic haveinsisted on greater care in weighingexploration plans at a time when theindustry is urging the NEB to drop itsrequirement for same-season relief wellsto deal with blowouts or spills.

—GARY PARK


NUNAVUT COMEBACK

Essential Expertise for AlaskaNalco is the world leader in delivering programsthat maximize production, protect assets andreduce TCO for Mining, Oilfield production, Refining, Industrial producers and Utilities. Our differentiated technologies and services • Save water • Increase energy • Deliver cleaner air and water

see SATELLITE FIELDS page 19

Development continues to evolve at West SakFaced with the challenge of retrieving viscous oil from relatively shallow and

unconsolidated reservoir sands in the company’s West Sak development, above theKuparuk River field on Alaska’s North Slope, ConocoPhillips has tried an evolvingseries of production techniques, according the latest West Sak plan of development.

The field went into production in 1997. By the end of 2013 cumulative oil pro-duction was 67.5 million barrels. The average production rate during 2013 was 15,772barrels of oil per day, the plan says.

Initial developmentInitial West Sak development involved the use of vertical injection and production

wells, with waterflood used to sweep oil from the underground rock reservoir. Multi-stage fracturing with gravel packing, or fracturing in combination with epoxy resin,was used to control the sand that tended to enter the production well bores. Downholeelectric submersible pumps and progressive cavity pumps drove oil up the well boresto the surface.

Beginning in 2000 ConocoPhillips tried a new production technique at West Sakinvolving the use of multilateral, horizontal production wells, in which more than onewell bore was driven horizontally through the reservoir from a single well bore drilledsteeply from the surface. This approach evolved into the use of horizontal wells forwater injection, as well as for oil production.

In a 2003 development program, undulating horizontal production and injectionwells were drilled, with the undulations enabling a single horizontal well to accessmore than 100 vertical feet of reservoir sands. Slotted liners in production wells lim-ited the entry of sand into the well bores, while downhole jet pumps drove oil towardsthe surface. The lengths of the horizontal lateral wells averaged 6,000 feet.

In 2004 ConocoPhillips drilled nine wells in West Sak, including the first tri-later-al wells, with three lateral wells running horizontally from a single steeply inclinedwell bore, the development plan says.

Multiple lateralsIn 2005 the drilling strategy changed, with ConocoPhillips abandoning the undu-

lating well design and, instead, using parallel multiple lateral wells to target individ-ual reservoir sands — the company had experienced drilling and well performanceinefficiencies, as the undulating wells passed through shale layers between the sands,

see WEST SAK page 19

http://www.efs-fire.com

http://www.kenworthalaska.com

ties. A high-resolution 3-D seismic surveyconducted in 2008 is being interpreted andincorporated into the reservoir model. Thissurvey is also providing insights into themovement of fluids in the Tarn reservoir,the plan says.

Although ConocoPhillips had originallyanticipated that miscible injectant injectedinto the Tarn reservoir would help lift oil tothe surface through production wells, prob-lems relating to paraffin deposition causedthe company to install hydraulic jet pumpsas an alternative “artificial lift” technique toaid oil production. But, as more water startsto break into the production stream, it maybe possible to revert to the original gas-liftconcept, the plan says. With water associat-ed with the pumping technique creatingsome corrosion issues in the wells, gas lifttechniques are planned for new wells.

And as the field matures, some produc-tion wells are being converted for injectionoperations, the plan says.

In addition to developments within theexisting Tarn field, ConocoPhillips hasbeen evaluating opportunities in two otherrelated discoveries, the Cairn and the Eskerprospects, the plan says.

TabascoThe Tabasco satellite field was discov-

ered in 1985 during development drillingfor the Kuparuk field. Development of thesatellite started in 1998.

Total cumulative production through tothe end of 2013 was 17.9 million barrels ofoil. The average oil production rate in 2013was 1,711 barrels per day.

An original plan to drill up to 19Tabasco development wells was scaledback to seven production wells and twoinjection wells, because of a problem asso-ciated with water in the reservoir. To date,12 wells have been drilled in the field, withfive producers and two injectors being online in 2013. Three deviated productionwells have been shut in because of highwater production and other problems, theplan says.

ConocoPhillips says that in 2014 it plansto continue to seek ways of producing more

oil from Tabasco through an improved oilrecovery program and through the drillingof additional development wells. The com-pany says that it is currently using water-flood to maximize oil recovery and that theuse of horizontal wells on the periphery ofthe field has minimized water production.Reservoir modeling suggest that the injec-tion of lean gas, polymer and water has thepotential to better sweep oil from the reser-voir at Tabasco — further modeling andsome laboratory testing is being consideredto evaluate this approach, with a rework ofthe field model targeted for 2014-2015.

Meantime, ConocoPhillips says that itwill monitor the performance of a newercompletion strategy used in three existingproduction wells at Tabasco, as a guide tothe design of possible future developmentwells.

MeltwaterIn early 2000, exploration drilling dis-

covered the Meltwater field, about nine

miles south of Tarn. Field developmentbegan in 2001, with the field comingonline in November of that year.

By the end of 2012 cumulative total oilproduction reached 17.7 million barrels,while the average production rate in 2013was 1,971 barrels per day. Of the 19 wellsdrilled in the field, 11 production wellsand four injection wells were active at theend of 2013, the plan says.

Initially ConocoPhillips used a WAGapproach with miscible injectant for oilrecovery from Meltwater. But since 2009,when the field’s water injection line wentout of service because of corrosion con-

cerns, the field has operated through thecontinuous injection of just miscibleinjectant, the Meltwater plan says.Having discovered that gas injection isparticularly effective at Meltwater,ConocoPhillips plans to maximize oilrecovery using gas injection for the fore-seeable future. And the gas/oil ratios ofindividual production wells will be moni-tored, to assess the performance of con-tinuous miscible injectant usage, the plansays.

Low pressuresFrom the outset of production from

Meltwater, ConocoPhillips has experi-enced difficulties with anomalously lowreservoir pressures, a problem that thecompany eventually attributed to a loss ofinjection fluids through one of the subsur-face rock intervals. As a consequence, in2012 the company adopted a new reser-voir management strategy involving theplacement of upper limits on injectionpressures, the Meltwater plan says.

However, observed pressure commu-nication between an injection and a pro-duction well has indicated the presence ofa linear feature in the subsurface thatallows the rapid flow of injected fluids.

ConocoPhillips uses a variety of artifi-cial lift techniques on a well-by-wellbasis at Meltwater, including the use ofhydraulic jet pumps, gas lift and plungerlift systems. The company is reviewing itsfuture options for artificial lift in the field.In addition the company has been analyz-ing some new seismic data to identifynew Meltwater development opportuni-ties, including the possibility of coiledtubing sidetrack wells, the developmentplan says. l


We use over 200 words to describe snow and only four

Words to describe how to travel in the Great Land:

An Alaskan Native Heritage company

Safe and comfortable

Gravel runway capable

King Air 200

19 passenger De Havilland Twin Otter

10 passenger Super STOL Single Turbine

Otter

Deadhorse, Anchorage and Homer hangars

Ask us about CASA 212-200 addition to our fleet

Available for 24-hour callout

Toll Free:

800.478.7969

Local:

907.235.7969

Baldmountainair.com

PO Box 3134

Homer, AK 99603

BALD MOUNTAIN AIR SERVICE

Owned and operated by lifelong Alaskans,

we provide safe, experienced aviation

services throughout Alaska and Canada.

Whether it’s aerial survey work, passenger

and freight delivery, scientific survey support,

or oil exploration, we’re ready to serve you.

“Dan Sullivan proved his effectiveness and willingness to fight during his time asAlaska’s attorney general and Department of Natural Resources commissioner,” addedRex A. Rock Sr., ASRC president and CEO. “His leadership qualities and priorities are val-ues that are aligned with ours as an organization, and he’ll be getting my vote comeAugust.”

Sullivan is one of 11 candidates from Alaska running for U.S. Senate in 2014. He’ll facethree other Republicans in the Aug. 19 primary.


OIL PATCH BITS


SATELLITE FIELDS

the plan says.Following exploration and delineation

drilling between 2004 and 2006, in 2008a first phase of development in the morenortheasterly part of the West Sak areabegan. Horizontal water injection wellsin this development used new technologyto hydraulically isolate two sand horizonsand improve the injection process. Themultilateral junctions in the wells were ofa new, advanced type, allowing improvedinjection control.

Along with evolving well designs,ConocoPhillips has tried different down-hole pump designs, in particular to dealwith the problem of sand entering andplugging wells. The plan of developmentsays that evaluation of well completiondesigns continues for northeast West Sak,with the use of gas for the artificial lift ofoil in production wells being a possiblealternative to downhole pumps. And thepace of development has slowed whilethe results of recent developments are

evaluated. Two new wells were started inNovember 2013 and the planning of sixnew wells involving a variety of comple-tion technologies will continue in 2014,the development plan says.

Further developmentsA development team is also evaluat-

ing the possibility of four new multilater-al producers and 15 vertical injectors inthe eastern part of the northeast West Sakarea.

ConocoPhillips has also been con-ducting a pilot project, testing the use ofviscous reducing water-alternating-gasenhanced oil recovery in West Sak. TheAlaska Oil and Gas ConservationCommission recently approved the full-scale use of this recovery technique in theWest Sak oil pool. The commission alsoapproved an extension of the pool, toadjust the pool boundary and to add somefurther reservoir sands above the existingWest Sak sands.

—ALAN BAILEY


WEST SAK

http://www.kasvcs.com

http://www.baldmountainair.com

tion for state equity participation — wasa requirement for pre-FEED to begin.

Under provisions of SB 138 the statewill take a 25 percent equity position in theproject, based on taking both royalties andproduction tax on natural gas in kind.

Two documents, the heads of agree-ment — between all the producing parties,the state and TransCanada — and thememorandum of understanding betweenthe state and TransCanada, were drawn upprior to the 2014 legislative session. SB138 enabled the state to participate in theAlaska LNG project as proposed by thoseagreements.

The MOU provided for the terminationof the state’s license with TransCanadaunder the Alaska Gasline Inducement Actand a transition to a commercial agree-ment. Parnell told a Fairbanks audienceJune 17 that the state had “terminated thelicense with TransCanada under AGIA”and completed a “traditional precedentagreement.”

That termination had been negotiated inthe MOU, which along with the HOA wasratified with the passage of SB 138.

The cost estimate for the state duringthe pre-FEED phase is $43 million to $100million, about 1 percent of the total invest-ment. Pre-FEED has been estimated at 18months.

Movement on to Phase 2, FEED,requires additional legislative approval, aswell as approval by the other parties. Thestate’s cost of the FEED stage is estimatedat $180 million to $450 million, some 2-3percent of the total investment.

Phase 3 is the final investment decision,and will, once again, require legislativeapproval for state participation as well asapproval by the other parties. FID marksthe beginning of construction, estimated totake place from 2019 to 2023, with thestate’s cost from $7 billion to $13 billion,95 to 97 percent of investment costs.

—KRISTEN NELSON


Extensive Alaskan ExperienceNDT • INSPECTION • MATERIALS ENGINEERING • ROPE ACCESS

Call 907.569.5000 or visit www.acuren.coma Rockwood Company

Remote Access TechnologySETTING THE STANDARD IN ALASKA

Call 907.249.5216 or visit www.ratintl.coma Rockwood Company

ND

est Pechnicians using Bt, yorr,ou need us ffoer yevthaW

ENGINEERING

tainain• Run & Mwns & do• Shut

ed saftes and documenticacrest Pge local wely on our larou can r, y

TERIALSAAT M•TION INSPEC•TND CESS

tainoundsnarurTwns &

.esedurocy pretaffetified ere of ccorkffoorge local w

C A ROPE• ENGINEERING TINGSET A

tionnsula• Ielding• W

tiononstruc• Ceenanctain• M

ASK AL INARDAND STTHETING

el of Rveigher LA H

yeliabilitel of R

esvicerMI S• Pope Aial Rndustr• I

y & Corta• Laborojecr• Expansion P

T Callout NDD• C

essccope Ationaalibry & C

tsojectonsultanT C

esvicescue ser• RTtions ( RnspecT I• ND

tionizaertin• Wanagement Mojecr• P

tionnsula• I

ors Lictactronal CenerAK G

)T, M, PTT,TT,V, , UTT,TT,

tanagemen

ense #39057ors Lic

219 E. International Airport Rd., Suite #200, Anchorage, AK 99518

exports to the United States by other par-ties,” said the WesPac application.

Construction could start in 2015Some energy supplies from Tilbury’s

storage are shipped considerable dis-tances to domestic markets such asWatson Lake, in the southern Yukon.

FortisBC also draws on the Tilburyoperation to supplement natural gas sup-plies during peak consumption periods inthe Lower Mainland.

WesPac said that obtaining an exportpermit is “an important step in the devel-opment of the WesPac LNG marine ter-minal and further expansion of LNGexport production capacity” at the plant.

Subject to receipt of the necessaryapprovals, construction will start in 2015,with completion scheduled for late 2016.

The company is confident it can findsufficient natural gas feedstock inWestern Canada, while preliminary dis-cussions indicate that sufficient pipelinecapacity is available on the Spectra net-work.

Woodfibre projected for 2015 approvalMeanwhile, British Columbia Premier

Christy Clark said Woodfibre should beup and running in the first quarter of2017, assuming a final investmentapproval in 2015.

She said that will enable the provinceto start LNG shipments to Asia faster thanexpected.

However, the provincial governmenthas yet to unveil the final details of its taxplan that will lead to a project develop-ment agreement with Woodfibre.

In response to those who suggestBritish Columbia is falling behind itsrivals in the United States and Australia,Clark said that “just because the criticsthink (the competition) is going to behard doesn’t mean we’re going to startwaving the white towel. I’m determinedwe’re going to win this race.”

“And the only way we’re going to winis to aim high, work hard and put ourpedal to the metal every day. We haveinvested a lot of time and a lot of politicalcapital in this.” l


LNG LIST


LNG PROJECT

judypatrickphotography.comCreative photography for the oil & gas industry.

907. 258.4704

907.522.9469

http://www.judypatrickphotography.com

http://www.acuren.com

http://www.ratintl.com

petroleum news 071314 petroleum news 082904 · l natural gas l s l exploration & production...

Documents