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l E X P L O R A T I O N & P R O D U C T I O N
l G O V E R N M E N T
l E X P L O R A T I O N & P R O D U C T I O N
Vol. 20, No. 39 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of September 27, 2015 • $2.50
page14
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of September 27, 2015 l C O L U M NNORTHERN NEIGHBORS
Compiled by Shane Lasley
Alexco drills bonanza resultsat Bermingham silver deposit
Drilling results in robust Coffee resourceKaminak Gold Corp. Sept. 23 reported that its recently com-
pleted 70,000-meter infill drill program nearly quadrupled theindicated resource tonnage at its Coffee gold project in YukonTerritory. Coffee now hosts 52.4 million metric tons of indicat-ed resource averaging 1.68 grams per metric ton (2.82 millionounces) gold. In addition to the nearly four-fold increase in ton-nage, the grade of the indicated resource has increased by eightpercent. Coffee also hosts 42.7 million metric tons of inferredresource averaging 1.52 g/t (2.09 million oz) gold, representinga 12 percent increase in grade for this category. Kaminak said itremains on-track to complete a feasibility study for Coffee inthe first quarter of 2016. “Coffee remains a strong project andone of the few development track gold projects located inCanada that can deliver sizeable, high-margin production inexcess of 160,000 ounces per annum in the current gold priceenvironment,” said Kaminak CEO Eira Thomas.
Pretium taps new zones near Valley of the KingsPretium Resources Inc. Sept. 21 reported initial results from
exploration drilling at the Flow Dome Zone, located east of theValley of the Kings deposit at its Brucejack Project inNorthwest British Columbia. Hole SU-654 cut 1.5 meters of16.9 grams of gold per metric ton at a depth of 877.5 meters,followed immediately by a 33-meter intercept of 0.55 g/t gold;hole SU-657 cut 21.87 g/t gold over nine meters, from a depthof 932 meters; and hole SU-658 cut 2.35 meters of 6.2 g/t goldfrom a depth of 778.65 meters, immediately followed by 0.26g/t gold over 90 meters. Hole 657 was drilled about 650 meterseast of the Valley of the Kings, and holes 654 and 658 are about1,000 meters east of the high-grade gold deposit. Pretium saidthese high-grade intersections along with long intervals of low-grade mineralization suggest a new stockwork zone or an exten-sion of the Valley of the Kings deposit. Roughly 10,000 to15,000 meters of drilling is planned for Flow Dome and theKitchenview Zone, located northeast of the Valley of the Kings,during the 2015 program.
see NORTHERN NEIGHBORS page 14
For more than a century Foss has successfully navigated Alaska’s most extreme environments.
www.foss.com
Today, as new opportunities appear on the Arctic horizon, Foss is ready to grow with Alaska.
Winter a perennial surpriseUptick in acquisitions brightens gloomy reality of Alaska minerals sector
By CURT FREEMANFor Mining News
By the time this summary
reaches your eyes, termi-nation dust (aka “snow”) willhave started to cover mineralprojects across Alaska. At arecent project site visit, one ofthe project owner’s represen-tatives was listening to localAlaskans talk about not beingready for winter, how manythings planned for the sum-mer remained un-done, etc.After some cogitation on this,he asked me “Does everyonein Alaska get surprised bywinter every year?” My
response was simple: When you are in denial,everything is a surprise!
While we might be in denial about the coming ofwinter, Alaska’s mineral industry swallowed a dis-tasteful spoonful of reality over the first three quar-ters of 2015. Exploration expenditures for Alaska’ssummer season were few and far between, likelycoming in at the same levels as our most recentmarket bottom in 2002. At mine sites, continueddepressed metals prices resulted in belt tightening,deferral of some capital costs and reduced mineexploration programs as the mines look to establishnew cost structures that will allow them to weatherthe price storm. One bright spot in the sea of gloomwas the rapid increase in the number of new projectacquisitions. Some of these acquisitions have beenannounced and some have not, while still others arenearing completion and are likely to be announced
before year-end. This sort ofacquisition activity normallypresages an uptick in the mar-kets, a re-stocking of the
shelves in anticipation of
growing demand to convertmineral resources into minedproducts. I don’t think it is outof line to say that Alaska’s
mineral industry is ready, will-ing and able to meet that
demand for new resources.
Interior AlaskaNORTHERN EMPIRE
RESOURCES CORP. and
SONORO METALS CORP.
announced results from theirphase-1 exploration program
on the Hilltop project in the Richardson District.The program confirmed and expanded the knowngold footprint, with channel samples grading up to19.45 grams per metric ton gold and rock grab sam-ples grading as high as 26.55 g/t gold. The workincluded collecting 61 confirmation soil samples,336 expansion soil samples, 228 rock samples, and213 meters of trenching. Soil sample results outlineda 400-meter-by-1,000-meter soil anomaly with val-ues above the 85th percentile, ranging from 13 to480 parts-per-billion gold. More widely spaced soilsampling expanded the zone of previously definedanomalous gold results 400 meters to the west anddefined a zone of interest measuring 2.4 kilometersby 2.4 kilometers. Significant channel sampleresults from five trenches included 7 meters at 1.41
TheauthorThe author
Curt Freeman,CPG #6901, is awell-known geol-ogist who lives inFairbanks. He pre-pared this column CURT FREEMANSept. 21. Freeman can be reached bymail at P.O. Box 80268, Fairbanks, AK99708. His work phone number atAvalon Development is (907) 457-5159and his fax is (907) 455-8069. His emailis [email protected] and his website iswww.avalonalaska.com.
see FREEMAN page 12
This week’s Mining News
Columnist Curt Freeman says an uptick in acquisitions has bright-ened a gloomy reality of the Alaska minerals sector. See page 11.
Q&A: Hawker — decision on roleof TransCanada in AKLNG needed
page5
Liberty starting lineFeds deem Liberty application complete; in-depth review officially begins
By ERIC LIDJIFor Petroleum News
Hilcorp Alaska LLC has officially submitted its
development plan for Liberty.
The U.S. Bureau of Ocean Energy Management
said Sept. 18 that the independent oil company had
submitted a completed plan to develop the offshore
oil field in the federal waters of the Beaufort Sea. The
distinction formally starts a 60-day review period.
While Hilcorp actually filed the “development
and production plan,” or DPP, with the federal
agency in the final days of 2014, federal guidelines
require a preliminary review to determine that a plan
has met the basic eligibility requirements for consid-
eration. In a general, a DPP describes proposed well
and infrastructure locations, drilling methods, a pro-
jected timeline for activities and impacts on both
onshore and offshore resources.
“BOEM will conduct a rigorous evaluation of this
DPP, recognizing the significant environmental,
social and ecological resources in the region and hon-
oring our responsibility to protect this critical ecosys-
tem, our Arctic communities, and the subsistence
needs and cultural traditions of Alaska Natives,”
BOEM Director Abigail Ross Hopper said in a state-
ment. “Any activity proposed offshore Alaska is scru-
tinized using the highest safety, environmental pro-
tection, and emergency response standards.”
The federal agency is taking comments on the
DPP through Nov. 17.
Before the Bureau of Ocean Energy Management
can approve, deny or request modifications of the
State certifies KLU No. 3DOG determines that exploration well discovered four gas pools; reduces royalty
By ERIC LIDJIFor Petroleum News
The state has certified Kitchen Lights Unit No.
3 as a discovery well.
With a Sept. 16 decision from Division of Oil
and Gas Director Corri Feige, the exploration well
became the official discovery well for four previ-
ously undiscovered natural gas pools in the Cook
Inlet basin. Now, operator Furie Operating Alaska
LLC and its working interest owners will pay a
reduced royalty rate on production from the well.
Under the new scheme, the companies will pay
a 5 percent royalty rate for all natural gas produced
at lease ADL 389197 from those four previously
undiscovered pools, rather than the traditional 12.5
percent royalty rate. The decision begins retroac-
tive to June 30, 2013 (at 7 p.m., Alaska Standard
Time, to be specific) and runs through June 29,
2023.
The determination is a three-step process: Are
the pools really pools? Are those pools really undis-
In or out of gameCAPP to next federal government: Unless pipelines built, oil sector in jeopardy
By GARY PARKFor Petroleum News
The Canadian petroleum industry’s top lobby
group has surfaced in the midst of Canada’s
federal election campaign, laying out a vigorous
case for oil and natural gas to generate national
prosperity.
Going head-on against the powerful forces that
have knocked the industry off its once-comfortable
and untouchable perch, the Canadian Association
of Petroleum Producers has issued a tightly framed
policy paper and sent its top executive to spread
the message across Canada.
Noting that Canada has the world’s third-largest
reserves of oil, yet accounts for only 4 percent of
global production, while exporting its natural gas
to only the United States, CAPP has argued for
developing those resources to “their full potential,
through leadership and fair, balanced policies to
make the country attractive for investment.”
It said producers believe their industry can
see LIBERTY PLAN page 24
see WELL CERTIFIED page 22
see CAPP’S CASE page 23
AKLNG to study 48-inch lineThe Alaska LNG project partners have agreed to Gov. Bill
Walker’s request that they study a 48-inch line.
The Alaska Dispatch News is reporting that the decision
was announced Sept. 23 at an Alaska Gasline Development
Corp. board meeting.
When the project gave legislators a quarterly update Sept.
9, Steve Butt, AKLNG project manager, said a study of a 48-
inch line was out for approval by sponsors. He said there was
Icewine well wins DNR approvalThe Alaska Department of Natural Resources, Division of Oil
and Gas, has approved an amended and modified lease plan of
operations by Accumulate Energy Alaska for the Icewine No. 1
exploration well.
The well will be drilled from the Franklin Bluffs gravel pad
adjacent to the Dalton Highway some 30 miles south of
Deadhorse.
The Sept. 16 decision lists a number of conditions of approval,
Companies argue for inlet creditsFour companies exploring, developing and/or producing in
Alaska’s Cook Inlet described the value of tax credits to their
operations — and to the state.
Officials from Apache, BlueCrest, Furie and Hilcorp told
the Senate Oil and Gas Tax Credit Working Group Sept. 22
that credits are part of the financing which enables them to
look for and find Cook Inlet natural gas and crude oil.
Tax credits are expected to come up for review by the
The determination is a three-step process:Are the pools really pools? Are those poolsreally undiscovered? Are the pools really
capable of producing in paying quantities?
The failure to introduce more pipelineshas undercut the crude prices fetched by
Canadian producers by an averageUS$13 per barrel lower than U.S. crudethis year, further squeezing the margins
in a depressed oil price environment.
see 48-INCH LINE page 22
see ICEWINE WELL page 24
see INLET CREDITS page 16
2 PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015
Petroleum News North America’s source for oil and gas newscontents
ENVIRONMENT & SAFETY
EXPLORATION & PRODUCTION
FINANCE & ECONOMY
GOVERNMENT
PIPELINES & DOWNSTREAM8 Top priority, little hope
Push by Canada’s socialist politicians to revive upgraders, refineries for value-added processingdeemed uneconomic by industry
5 Hawker: TransCan decision needed soon
Anchorage Republican says progress on AKLNG projectbeing made, but administration has pressing matters that need addressing
NATURAL GAS6 Audit rattles Malaysia-based Petronas
Energy giant’s safety record censured by internal report,but BC government defends standards
10 Great Bear planning more exploration
Deciding on testing of Alkaid well; going to conducta fifth 3-D seismic survey in leased acreage south of Prudhoe and Kuparuk
15 Weekly US rig count falls by 6 to 842
7 PWSRCAC calls for EVOS agreement
4 Suncor Energy deploys piggybank
AKLNG to study 48-inch line
Icewine well wins DNR approval
Companies argue for inlet credits
Liberty starting line
Feds deem Liberty application complete; in-depth review officially begins
State certifies KLU No. 3
DOG determines that exploration well discovered four gas pools; reduces royalty
In or out of game
CAPP to next federal government: Unlesspipelines built, oil sector in jeopardy
ON THE COVER
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(907) 272-1232(907) 272-1344
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PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015 3
4 PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015
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CORRECTIONTheodore River well correction
The Alaska Division of Oil and Gas has issued a correction to an Aurora
Exploration LLC exploration plan currently under review for the Hanna prospect
on the west side of Cook Inlet.
The proposed Theodore River No. 1 well pad would actually be on ADL
391620, rather than ADL 391618, as mentioned in original permitting documents
published online.
The state is still taking comments through Oct. 10.
—ERIC LIDJI
l F I N A N C E & E C O N O M Y
Suncor Energydeploys piggybank
By GARY PARKFor Petroleum News
Suncor Energy has scooped C$310
million out of its cash stash to add a
10 percent stake to the 40.8 percent share
it has as operator of the next big oil sands
project due on stream in Alberta.
The seller is Total E&P Canada, a
wholly owned division of France’s Total,
which will keep 29.2 percent of the Fort
Hills project, leaving 20 percent with the
mining conglomerate Teck Resources.
Suncor said the transaction, which can
be completed within its current capital
budget for 2015 of C$5.8 billion to C$6.4
billion, demonstrates its continuing con-
fidence in the oil sands sector.
“With engineering over 90 percent
complete and construction surpassing 40
percent, Fort Hills is on track, with first
oil expected in the fourth quarter of
2017,” said Suncor Chief Executive
Officer Steve Williams.
The C$13.5 billion Fort Hills mine is
designed to reach an eventual peak of
180,000 barrels per day.
Total said the deal further shrinks its
exposure to the high-cost oil sands. Last
year it abandoned Joslyn, a separate C$6
billion mining venture that once targeted
100,000 bpd, with first oil due in 2017.
Total held 28.75 percent of that project,
with Suncor at 36.75 percent, followed
by Occidental Petroleum with 15 percent
and Inpex Canada at 10 percent.
Cash for ‘distressed assets’Earlier in September Williams said his
company’s cash holdings of C$5 billion
could be used to buy “distressed assets
(in) fire sales.”
“We have too much cash on our bal-
ance sheet,” he said. “We’ve been gener-
ating more cash than we anticipated
when we put that C$5 billion in the
bank.”
Williams said the slump in oil prices
put the squeeze on some companies,
indicating there could be acquisition
opportunities that didn’t exist six months
ago.
He said the spread between what buy-
ers like Suncor are willing to pay and
what distressed sellers are willing to
accept has narrowed significantly.
“Clearly prices are coming down
(while) time is on our side in terms of
waiting,” Williams said.
He also said that allocating new capi-
tal to new internal projects would be
unwise in this period of low oil prices.
What frustrates Suncor is the “stupid-
ity” of pipeline politics in the United
States and Canada, he told an energy
conference in New York.
There is “no monopoly on that stupid-
ity in the United States, though we have
a fair amount of it (in Canada) as well,”
Williams said.
Suncor currently has contracts in
place to ship 600,000 bpd through exist-
ing pipelines, but progress is needed on
new pipeline projects if there is to be any
hope of further growth in the oil sands
sector, he said. l
The C$13.5 billion Fort Hills mineis designed to reach an eventualpeak of 180,000 barrels per day.
By STEVE QUINNFor Petroleum News
L egislative Budget & Audit Chair
Rep. Mike Hawker says he’d like to
have consultants help the Legislature
examine a deal among the producers and
the state of Alaska for a large-diameter
pipeline shipping natural gas to an LNG
export facility.
But he needs a deal first.
Hawker, an Anchorage Republican
who also serves on the Resources
Committee, issued caution against hold-
ing North Slope leaseholders to a hard-
and-fast schedule for a project this big
while identifying priority areas he
believes needs addressing during a spe-
cial session and the upcoming regular
session.
Hawker discussed his take on the
project with Petroleum News.
Petroleum News: Let’s start with theAKLNG project, say from a 30,000-footview. What are your impressions thus farwith any progress?
Hawker: From the 30,000-foot view,
there is always progress being made.
Every single day the people who need to
be talking to each other are actively
engaged in dialogue. They are engaged
in negotiations and every time you talk
you make some degree of progress.
Petroleum News: And how about asget closer to ground level? Is there moreprogress or do concerns emerge?
Hawker: I think that the Legislature
and the public had been conditioned to
anticipate that there would be a fall 2015
special session that would have a fully
papered agreement for an up or down
vote. I do not believe that there will be a
fully papered agreement available for a
2015 special session. I believe there are
certain matters that necessarily need to
be dealt with in a fall 2015 special ses-
sion. That is specifically our relationship
with TransCanada. If the governor wish-
es to exit that relationship, he needs to
convince the Legislature that it’s the
right thing to do. The Legislature, in
turn, needs to appropriate a little over
$100 million to him for the buyout and
substantially more money for the state to
continue on its own without the financ-
ing TransCanada had brought to the
table.
Petroleum News:So are you disap-pointed that hewon’t likely have afully papered agree-ment or would yourather have it readywhen it’s ready.
Hawker:
Megaproject science
demonstrates over
and over again that schedule driven
megaprojects have a much higher proba-
bility of failure than those projects that
are driven by and developed on their
merits. To that end, I absolutely want to
see this project developed on its merits
and not be driven by an artificial sched-
ule.
The schedule I foresee us on current-
ly, which would involve having a fully
papered agreement in front of the
Legislature sometime next year as
opposed to this fall, are well within the
time parameters that were anticipated
and established when we passed SB 138.
So while the fall special session date is
slipping somewhat, it is still well within
the parameters of SB 138. So you can’t
call the slippage a failure of achievement
but it’s simply recognizing a more realis-
tic expected date.
Petroleum News: So you still expectFEED to be the second quarter of nextyear?
Hawker: I think that
decision, it needs to be
made sometime within next
year, necessarily the second
quarter, the third quarter,
the fourth quarter. So sometimes next
year would be the anticipated date would
be for making the decision to move into
FEED.
Petroleum News: OK, on toTransCanada. What are your thoughtson the prospects of buying outTransCanada?
Hawker: When Gov. Parnell intro-
duced the MOU with TransCanada
describing the continued relationship
with them, what they would provide the
state in expertise and financing in
exchange for an equity position for the
pipeline segment of the project, it was a
hard sell for the administration. They
really had to come to the table and con-
vince legislators that it was the right and
best thing to do. They did that success-
fully. I’m certainly one of those legisla-
tors. I was certainly leery of
TransCanada’s role as
defined in the Parnell
administration’s MOU.
But through the course
of a legislative session, the
many, many hearings and
hundreds of hours we had in SB 138, I
became a believer that TransCanada
brought to the table a great deal of sup-
port for the project, but both financing
and technically and that their take from
the project — their share of the econom-
ic pie — was extremely small. I came to
believe that it really was the best and
right thing for the state to do to bring
TransCanada into the transaction as it
was contemplated.
Gov. Walker campaigned that he did
not want TransCanada in the project.
l G O V E R N M E N T
Hawker: TransCanada decision needed soonAnchorage Republican says progress on AKLNG project being made, but administration has pressing matters that need addressing
PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015 5
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By GARY PARKFor Petroleum News
Already struggling against a growing tide, British
Columbia’s Pacific NorthWest LNG venture now
faces problems originating within Petronas, the lead partner
in an Asian consortium that underpins the C$36 billion plan.
A 732-page internal audit submitted to senior manage-
ment two years ago and obtained by the Vancouver Sun pin-
pointed an array of problems at the Malaysian company’s
global oil and gas operations.
The newspaper said the auditors concluded that the safe-
ty issues were “almost certain (to result) in catastrophic”
events.
The report said that a failure to take prompt action could
result in “multiple fatalities,” “extensive damage” to facili-
ties, “massive” harm to the environment and a “major” blow
to the state-owned company’s reputation.
It said many of the deficiencies dated back many years,
with even Petronas citing its concern about a number of
accidents and deaths in the two years leading up to the 2013
audit.
Inadequate training citedThe company said the asset-audit, which pinpointed
inadequate training of employees and corrosion threatening
the structural integrity of facilities, resulted in immediate
action.
Executive Vice President Wee Yiaw Hin said Petronas
has “acknowledged the gaps identified in the report and we
have executed a comprehensive program to resolve the
issues and ensure the safety of our people, environment and
our facilities.”
Rich Coleman, British Columbia’s deputy premier and
natural gas development minister, told the Vancouver Sun
that although the audit caught him off-guard he was not con-
cerned about the ability of Petronas and its Pacific
NorthWest partners from China, South Korea, Japan and
Brunei, “to meet the highest standards in the world” that
have been set by the British Columbia government and the
“strict” regulatory regime operated by the B.C. Oil and Gas
Commission.
Coleman indicated he was reassured that Petronas had
commissioned the audit and claimed the company’s record
in the LNG sector “is impeccable.”
He also found comfort in the fact that the other partners
in Pacific NorthWest have reputations they will want to
safeguard and that Petronas’ stake in the project will be
overseen by Progress Energy, the Calgary-based gas pro-
ducer which was acquired for C$6 billion by Petronas in
2012.
In addition, Petronas has noted that its pipeline from the
Progress gas fields in northeastern British Columbia to the
liquefaction plant and tanker port near Prince Rupert will be
built and operated by TransCanada, which Petronas
describes as an “experienced major pipeline company.”
Petronas most aggressiveMore than any of the British Columbia LNG proponents,
Petronas has taken the most openly aggressive stance,
squeezing the Canadian and British Columbia governments
to provide tax breaks and assurances to protect it from any
future tax increases.
Far from being shaken by the audit findings, Coleman
said he remains “bullish” about the Pacific NorthWest pro-
posal.
But John Horgan, leader of the British Columbia’s New
Democratic Party, which conditionally endorses the concept
of LNG development, was disturbed by the audit findings.
“It’s jaw-dropping that a company that has been doing
business with the government of British Columbia for the
past number of years would have a track record like this,”
he said. “If the government didn’t know about this record,
they should have. And if they did know and they didn’t tell
people, why is that?”
Horgan said the audit shows that Petronas “is a state-
owned company that clearly has been cutting corners when
it comes to the environment and safety.”
Andrew Weaver, the only Green Party member in the
British Columbia legislature, said the Vancouver Sun’s
reporting was devastating for a project that is on shaky
ground due to global LNG prices and First Nations opposi-
tion.
He said “it’s going to be enormously hard (for Petronas)
to get public trust” and secure a “social license” to proceed.
Horgan said he is primarily concerned that the govern-
ment of Premier Christy Clark has “bent over backwards to
try and accommodate Petronas with respect to taxation and
royalties and spent no time” examining the company’s envi-
ronmental, health and safety records.
“That lack of due diligence is shocking to me and should
be shocking to British Columbians,” he said.
Petronas reviewing engineeringIn an effort to deflect attention from the audit, Petronas
said it is reviewing the engineering for its terminal, as well
as the location of a bridge and jetty connecting to the pro-
posed berth for LNG carriers on Lelu Island.
A spokesman for Pacific NorthWest said “significant
consultation has taken place with local First Nations,” who
have warned about the impact on fish habitat.
l N A T U R A L G A S
Audit rattles Malaysia-based PetronasEnergy giant’s safety record censured by internal report, but BC government defends standards; First Nation claims title to key land
see INTERNAL AUDIT page 7
Of the five Tsimshian First Nations con-
sulted last year, two have signed impact
benefit agreements, two have yet to make a
decision and the Lax Kw’alaams tribe has
set up an occupation camp on Lelu Island.
“It is important to take our time and hear
from all interested parties as we move
through the design phase of our proposed
facility,” the spokesman said.
But the Lax Kw’alaams have signaled
that they are not much interested in negoti-
ating by filing a notice of civil claim that
makes their case in the British Columbia
Supreme Court to gain title to Lelu Island.
The tribe’s Mayor Garry Reece said an
award of ownership is needed for his com-
munity to “protect crucial salmon habitat,
protect our food security and ensure that
governments and industry are obligated to
seek our consent.”
The defendants in the legal action
include the British Columbia and Canadian
governments, the Prince Rupert Port
Authority and Pacific NorthWest.
Analyst: Redesign a challengeAltaCorp Capital analyst Mark Westby,
the co-author of a new report on British
Columbia’s chances of launching an LNG
industry, said the challenge facing Pacific
NorthWest is how to redesign infrastruc-
ture to move it farther away from the eco-
logically sensitive area.
He cautioned that if the New
Democratic Party wins the Canadian elec-
tion on Oct. 19 it is likely to order more
detailed environmental assessments that
could further delay the project.
The AltaCorp report said that of the 20
LNG proposals on the table in British
Columbia, four have the best chance of
proceeding — Pacific NorthWest, LNG
Canada led by Royal Dutch Shell, WCC
LNG co-owned by ExxonMobil and
Imperial Oil, and a small joint venture
backed by AltaGas.
A report by investment dealer Peters &
Co. said there could be delays and cancel-
lations involving projects, but it believes
that LNG exports are likely to take place
from the British Columbia coast.
“The coming 12 months will prove piv-
otal for LNG development on the Canadian
West Coast,” the Calgary-based firm said.
“High capital costs, the required devel-
opment of infrastructure, the extended reg-
ulatory approval process and weakness in
Asian LNG prices increase the risk of
deferral or cancellation of projects in the
near term,” the 21-page study said.
Kitimat LNG ‘substantially started’Peters & Co. said Kitimat LNG, co-
owned by Chevron and Australia’s
Woodside Petroleum, “has been substan-
tially started” which means the project will
not lose the environmental assessment cer-
tificate it received in 2006.
It said Pacific NorthWest appears to
lead the British Columbia field, although it
may not receive a federal environmental
ruling until early 2016.
The firm also believes that Aurora LNG,
led by Nexen (which is wholly owned by
China’s CNOOC Ltd.) with Japan’s
INPEX and JPG as partners, remains in the
running.
But even if only a handful of projects go
ahead, Peters & Co. said that would bolster
the operation of natural gas producers in
British Columbia’s Montney formation and
Alberta’s Deep basin. l
PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015 7
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on implementation of the 2006 restoration plan under the Exxon Valdez oil spill
reopener for unknown injury.
The council passed a resolution Sept. 18 “Supporting Habitat Restoration
Pursuant to Damages Caused by the 1989 Exxon Valdez Oil Spill.” The Exxon
Valdez Settlement Agreement contains a reopener clause allowing the state or fed-
eral government to request additional monies from Exxon “due to unanticipated
remaining oil in the environment and subsequent failure of species to recover
within Prince William Sound,” the resolution states.
The provision in the settlement, entitled “Reopener for Unknown Injury,”
would require Exxon to make additional payments for specific restoration proj-
ects if specific conditions are met, the council said.
The state and federal governments presented Exxon Mobil Corp. with a com-
prehensive plan pursuant to the reopener clause in June 2006 which provided for
cleanup of lingering oil at an estimated cost of $92 million.
ExxonMobil has maintained that EVOS cleanup has been completed while
environmental groups have argued that oil from the spill has been degrading at
slower rates than expected. An environmental group following the issue has said
that under the settlement claims under the reopener expire in June 2016.
The council cited recently published research for which it was one of the spon-
sors which found that even low levels of Alaska North Slope crude oil impacted
embryonic salmon and herring producing heart damage and resulting in reduced
swimming ability and reduced survival.
—PETROLEUM NEWS
continued from page 6
INTERNAL AUDIT
By GARY PARKFor Petroleum News
If Canadian voters opt for a second electoral upheaval
of 2015 and follow Alberta’s stunning lead by handing
power to the socialist New Democratic Party one thing is
certain for the petroleum industry.
All bets are off.
The already fading hopes for domestic and export
pipelines to deliver oil sands bitumen to markets in North
America, Asia and Europe would likely be even shakier.
But, in what would be an about face for political parties
that are invariably at cross-purposes with the oil and nat-
ural gas sector, the two NDP administrations could find
themselves tackling one of the costliest, most intimidating
challenges within the industry.
Push for upgraders, refineriesBoth the Alberta and the federal NDP are certain they
can extract better value from Canada’s natural resources
and create jobs by rewarding those who establish
upgraders (to convert raw bitumen into synthetic crude for
refining into fuels) and conventional refineries.
Alberta Premier Rachel Notley is committed to devel-
oping a royalty structure that would keep more of the
upgrading and refining operations in Alberta.
She said the 44-year Conservative party rule in Alberta
had “squandered our wealth with a fire sale of our
resources. We’ll stop the fire sale and start rewarding busi-
nesses that create upgrading and refining jobs here at
home.”
The new Alberta government insists that the province’s
“current royalty regime rewards extraction, rather than
promoting value-added processing.”
It said a report commissioned by the Alberta Energy
Department has concluded that upgrading bitumen in
Alberta “results in approximately four times the value per
barrel of bitumen processed.”
The government said that reviving four of the
upgraders that were scrapped in 2008 would have helped
create 4,000 permanent operations jobs and an additional
12,000 service, supply and maintenance jobs, while gen-
erating C$400 million a year in provincial corporate tax
revenues.
It argues that the drop in oil prices has lowered con-
struction costs, while increasing the potential for greater
profits from refined products.
The federal NDP under Thomas Mulcair, having
pledged to change Canada’s energy landscape, has given
priority to working with provincial governments to
“upgrade and refine our raw resources here in Canada.”
Obvious leversThe obvious levers at the disposal of an NDP adminis-
tration would be: 1) preferential tax treatment, even
though Mulcair has insisted he will remove C$240 million
a year in subsidies from the industry; 2) placing limits on
exports of bitumen, which would put the government on a
collision course with the North American Free Trade
Agreement; and 3) direct government involvement in the
refining sector.
Mulcair has hinted he wants to apply the model which
has allowed Norway to “leverage its resources to create
value-added jobs,” although that country is still only pro-
cessing 300,000 barrels per day of the 1.8 million bpd of
crude it produces, while Canada refines a far higher per-
centage of its production — 1.9 million bpd of 3 million
bpd (with 1.2 million bpd of unprocessed bitumen current-
ly being shipped to the United States).
Issue of industry supportWhat neither branch of the NDP — Alberta or federal
— has explained is how it hopes to gain industry support
to reverse a pullback from refining that has stretched over
more than 30 years.
l P I P E L I N E S & D O W N S T R E A M
Top priority, little hopePush by Canada’s socialist politicians to revive upgraders, refineries for value-added processing deemed uneconomic by industry
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“If it were economic to have a new refinery, Iassure you there would be one.” —Ian
Anderson, president of Kinder Morgan Canada
see ROYALTY STRUCTURE page 9
A North West Upgrading facility near
Edmonton is scheduled to start operations
in two years, making it the first new refin-
ery in Canada since 1984, while a North
Dakota refinery that opened earlier this
year was the first to be built in the U.S.
since 1976 — reflecting the reluctance by
companies to make massive investments in
a volatile sector.
Playing in the big leagues is not for the
faint of heart, as oil sands giant Suncor
Energy and its French partner Total discov-
ered two years ago.
They finally took the unprecedented,
but not unexpected step of abandoning
their C$11.6 billion Voyageur upgrader
after spending C$3.5 billion on the initial
construction phases, after deciding that the
venture did not make economic sense and
getting caught off-balance by a dramatic
shift in the North American crude market.
The upgrader, designed to process
200,000 bpd of bitumen, had long been
presented as a key plank in Suncor’s plan
to raise its production by 120 percent from
2004 to 550,000 bpd in 2016.
Mike Dunn, director, institutional
research, with FirstEnergy Capital, said the
decision was inevitable “because these
projects don’t make money.”
North West has government supportBackstopped by the Alberta govern-
ment, North West has been able to battle
through headwinds, despite swallowing
the usual dose of cost overruns which have
raised its price tag by 50 percent to C$8.5
billion and despite a delay of one year in its
planned startup of commercial operations.
North West Chief Executive Officer Ian
MacGregor has consistently argued that if
Alberta wants to build schools and hospi-
tals and infrastructure and stem the flow of
taxes, jobs and economic activity to the
United States it needs an expanded refin-
ing business.
Judith Dwarkin, chief energy economist
at ITG Investment Research, refuses to
accept the idea that spending billions of
dollars to increase refining capacity in
Canada will be an economic benefit, not-
ing that the Alberta government has been
forced to supply 37,500 bpd of its own
marketable bitumen and pay fees for pro-
cessing to keep North West alive.
She argued that rather than being a
commercially based venture, the upgrader
has required an infusion of public funds.
Ted Morton, a former Alberta finance
minister and now a senior fellow at the
University of Calgary School of Public
Policy, has described North West as a
“boondoggle with high risks for Alberta
taxpayers,” costing them C$26 billion.
Refineries proposed for BC coastWith other proposed upgraders and
refineries for Alberta now on the shelf, the
only slender hope for advancing where
Alberta has faltered rests with three
refineries that have been proposed for the
British Columbia coast, mostly tied to the
wavering chances of accessing Asian mar-
kets with oil sands production.
Two of them — Pacific Future Energy
and Kitimat Clean — require pipelines
from Alberta (with Pacific Future also
exploring the possibility of moving the
crude by rail) to the plants on the British
Columbia coast, where the bitumen would
be converted into refined products that the
proponents claim would be more accept-
able than loading tankers with raw bitu-
men.
The third scheme, Eagle Spirit Energy,
would refine bitumen in either Alberta or
northeastern British Columbia before pip-
ing the products to the Pacific Coast for
export.
Among the obstacles to be overcome —
securing financial backers and Asian cus-
tomers, gaining support from First Nations
and environmentalists and obtaining regu-
latory approval — there has been no enthu-
siasm in Asia for giving preference to
Canadian refineries.
Ultimate barrier economicsIan Anderson, president of Kinder
Morgan Canada, which plans to triple
capacity on its Trans Mountain pipeline
from the oil sands to the Pacific Coast, also
points to the ultimate barrier.
“If it were economic to have a new
refinery, I assure you there would be one,”
he said.
Almost from the initial announcement,
the proposed C$25 billion, 550,000 bpd
Kitimat facility was scorned, with Michael
Ervin, principal of MJ Ervin & Associates,
suggesting the chances of moving to the
construction phase were almost nil.
“It makes no sense to build a refinery of
that size on the West Coast, especially
when you consider that China is adding
refineries that will be able to process 3 mil-
lion bpd of crude (by 2018),” he said.
Ervin said the price differential between
the price of crude and the petroleum prod-
ucts extracted from it will never work,
even before capital and operating costs
were included.
Even if opponents succeeding in scut-
tling Enbridge’s Northern Gateway
pipeline plans to export 525,000 bpd
through Kitimat, he said there are enough
other options to move crude bitumen to
market to render plans for new refineries in
Canada suspect.
And that assessment could be the even-
tual downfall for any NDP governments
that attempt to use the public purse to
entice industrial partners to take a path that
others have long since rejected. l
PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015 9
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continued from page 8
ROYALTY STRUCTUREAmong the obstacles to be
overcome — securing financialbackers and Asian customers,
gaining support from First Nationsand environmentalists and
obtaining regulatory approval —there has been no enthusiasm in
Asia for giving preference toCanadian refineries.
By ALAN BAILEYPetroleum News
Great Bear Petroleum Operating LLC
is currently evaluating opportunities
to test the Alkaid No. 1 exploration well
that it drilled on the North Slope last win-
ter, Patrick Galvin, Great Bear executive
vice president, told the Alaska Oil and Gas
Congress on Sept. 23. And the company
plans to shoot a fifth 3-D seismic survey in
its North Slope acreage in the coming win-
ter, thus establishing an extremely compre-
hensive 3-D dataset across the company’s
leases, Galvin said.
Great Bear’s current plan of operations
envisages the drilling of three exploration
wells, including the Alkaid well, all in the
same general area to the west of the Dalton
Highway, south of Prudhoe Bay. But
because of operational difficulties, the
company was only able to drill one well,
the Alkaid well, during the past winter, and
had run out of time to conduct testing after
completing the well, Galvin said. In partic-
ular, the flooding of the Dalton Highway
during the winter created logistical prob-
lems for the drilling operation, especially
given the highway closure between the
drilling site and Deadhorse, the source of
supplies for field operations, he said.
Evolving strategyReflecting on what Great Bear has
achieved since purchasing more than
500,000 acres in state leases in 2010
across a broad swath of the central North
Slope, Galvin said that the company’s
exploration strategy has evolved as it has
discovered more about its lease holdings.
Initially the company had embarked
on a program designed to exploit the pos-
sibility of extracting oil directly from the
North Slope’s prolific oil source rocks,
using techniques such as horizontal
drilling and hydraulic fracturing, along
the lines of shale oil development that has
been carried out with great success in the
Lower 48. The three primary source rock
intervals on the North Slope are stacked
one above the other, thus opening up the
possibility of investigating all three at the
same location, Galvin said.
In the summer and fall of 2012 Great
Bear drilled two wells off the Dalton
Highway, having identified six potential
well locations with year-round access
near the highway. The company acquired
about 650 linear feet of rock core from
the source rocks penetrated by these
wells, Galvin said.
The company also embarked on a
major program of 3-D seismic surveying
across its acreage, for the identification of
optimum places to drill. But that seismic
enabled the company to discover conven-
tional drilling prospects within the major
rock intervals of the North Slope petrole-
um system, Galvin said. And, as thinking
about so-called conventional and uncon-
ventional oil development has evolved in
the oil industry, Great Bear’s view of its
exploration opportunities has morphed
into seeing more of a spectrum of oppor-
tunities, ranging from pure source rock
development at one extreme to, on the
other hand, the development of tradition-
al oil reservoirs.
Oil migrationGreat Bear purchased leases in an area
where the source rocks are believed to
have generated oil, with that oil under-
stood to have migrated north into the
reservoir rocks of oil fields such as
Prudhoe Bay and Kuparuk River. Under
Great Bear’s exploration concept, much
of the generated oil would have remained
in the oil source rocks, while some of the
oil would have become trapped in various
underground rock structures in the
process of migrating north. Great Bear is
using its 3-D seismic data to find those
potential trapping structures, thus
enabling the company to drill in search of
oil in the structures as well as seeking oil
left in the source rock intervals, Galvin
explained.
In addition to conducting seismic sur-
veys, Great Bear has carried out LIDAR
— light detection and ranging — surveys
in its acreage, to develop detailed topo-
graphic maps for the planning of surface
developments such as the construction of
ice roads. The three exploration wells in
Great Bear’s current operations plan all
require winter drilling, with site access by
ice road.
Exploration challengesReflecting on the challenges facing oil
explorers working on the North Slope,
Galvin commented on the general short-
age of data in areas outside the existing
oil fields. For example, no previous wells
had penetrated the Shublik, a key oil
source rock in Great Bear’s exploration
acreage, he said. The annual winter
exploration season, which depends on the
freezing of the ground and on the snow
cover, is short and unpredictable in length
— it is difficult to predict when drilling
can start and how many wells can be
drilled in a season. There can also be sig-
nificant permitting challenges — Great
Bear’s relatively simple 2015 winter
drilling operation required 19 permits and
involved 16 different government agency
contacts, Galvin said.
And, especially given a lack of compe-
tition within the industry service sector
and a tendency to execute one-off explo-
ration drilling programs, the costs of con-
ducting exploration are high.
Great Bear plans to address these chal-
lenges by completing the 3-D seismic
coverage across the company’s explo-
ration acreage, expanding its inventory of
l E X P L O R A T I O N & P R O D U C T I O N
Great Bear planning more explorationDeciding on testing of Alkaid well; going to conduct a fifth 3-D seismic survey in leased acreage south of Prudhoe and Kuparuk
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Better.
Great Bear purchased leases in anarea where the source rocks arebelieved to have generated oil,
with that oil understood to havemigrated north into the reservoirrocks of oil fields such as Prudhoe
Bay and Kuparuk River.
see GREAT BEAR page 15
page14
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of September 27, 2015
l C O L U M N
NORTHERN NEIGHBORSCompiled by Shane Lasley
Alexco drills bonanza resultsat Bermingham silver deposit
Drilling results in robust Coffee resource
Kaminak Gold Corp. Sept. 23 reported that its recently com-
pleted 70,000-meter infill drill program nearly quadrupled the
indicated resource tonnage at its Coffee gold project in Yukon
Territory. Coffee now hosts 52.4 million metric tons of indicat-
ed resource averaging 1.68 grams per metric ton (2.82 million
ounces) gold. In addition to the nearly four-fold increase in ton-
nage, the grade of the indicated resource has increased by eight
percent. Coffee also hosts 42.7 million metric tons of inferred
resource averaging 1.52 g/t (2.09 million oz) gold, representing
a 12 percent increase in grade for this category. Kaminak said it
remains on-track to complete a feasibility study for Coffee in
the first quarter of 2016. “Coffee remains a strong project and
one of the few development track gold projects located in
Canada that can deliver sizeable, high-margin production in
excess of 160,000 ounces per annum in the current gold price
environment,” said Kaminak CEO Eira Thomas.
Pretium taps new zones near Valley of the Kings
Pretium Resources Inc. Sept. 21 reported initial results from
exploration drilling at the Flow Dome Zone, located east of the
Valley of the Kings deposit at its Brucejack Project in
Northwest British Columbia. Hole SU-654 cut 1.5 meters of
16.9 grams of gold per metric ton at a depth of 877.5 meters,
followed immediately by a 33-meter intercept of 0.55 g/t gold;
hole SU-657 cut 21.87 g/t gold over nine meters, from a depth
of 932 meters; and hole SU-658 cut 2.35 meters of 6.2 g/t gold
from a depth of 778.65 meters, immediately followed by 0.26
g/t gold over 90 meters. Hole 657 was drilled about 650 meters
east of the Valley of the Kings, and holes 654 and 658 are about
1,000 meters east of the high-grade gold deposit. Pretium said
these high-grade intersections along with long intervals of low-
grade mineralization suggest a new stockwork zone or an exten-
sion of the Valley of the Kings deposit. Roughly 10,000 to
15,000 meters of drilling is planned for Flow Dome and the
Kitchenview Zone, located northeast of the Valley of the Kings,
during the 2015 program.
see NORTHERN NEIGHBORS page 14
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Winter a perennial surpriseUptick in acquisitions brightens gloomy reality of Alaska minerals sector
By CURT FREEMANFor Mining News
By the time this summary
reaches your eyes, termi-
nation dust (aka “snow”) will
have started to cover mineral
projects across Alaska. At a
recent project site visit, one of
the project owner’s represen-
tatives was listening to local
Alaskans talk about not being
ready for winter, how many
things planned for the sum-
mer remained un-done, etc.
After some cogitation on this,
he asked me “Does everyone
in Alaska get surprised by
winter every year?” My
response was simple: When you are in denial,
everything is a surprise!
While we might be in denial about the coming of
winter, Alaska’s mineral industry swallowed a dis-
tasteful spoonful of reality over the first three quar-
ters of 2015. Exploration expenditures for Alaska’s
summer season were few and far between, likely
coming in at the same levels as our most recent
market bottom in 2002. At mine sites, continued
depressed metals prices resulted in belt tightening,
deferral of some capital costs and reduced mine
exploration programs as the mines look to establish
new cost structures that will allow them to weather
the price storm. One bright spot in the sea of gloom
was the rapid increase in the number of new project
acquisitions. Some of these acquisitions have been
announced and some have not, while still others are
nearing completion and are likely to be announced
before year-end. This sort of
acquisition activity normally
presages an uptick in the mar-
kets, a re-stocking of the
shelves in anticipation of
growing demand to convert
mineral resources into mined
products. I don’t think it is out
of line to say that Alaska’s
mineral industry is ready, will-
ing and able to meet that
demand for new resources.
Interior AlaskaNORTHERN EMPIRE
RESOURCES CORP. and
SONORO METALS CORP.
announced results from their
phase-1 exploration program
on the Hilltop project in the Richardson District.
The program confirmed and expanded the known
gold footprint, with channel samples grading up to
19.45 grams per metric ton gold and rock grab sam-
ples grading as high as 26.55 g/t gold. The work
included collecting 61 confirmation soil samples,
336 expansion soil samples, 228 rock samples, and
213 meters of trenching. Soil sample results outlined
a 400-meter-by-1,000-meter soil anomaly with val-
ues above the 85th percentile, ranging from 13 to
480 parts-per-billion gold. More widely spaced soil
sampling expanded the zone of previously defined
anomalous gold results 400 meters to the west and
defined a zone of interest measuring 2.4 kilometers
by 2.4 kilometers. Significant channel sample
results from five trenches included 7 meters at 1.41
TheauthorThe author
Curt Freeman,CPG #6901, is awell-known geol-ogist who lives inFairbanks. He pre-pared this column CURT FREEMANSept. 21. Freeman can be reached bymail at P.O. Box 80268, Fairbanks, AK99708. His work phone number atAvalon Development is (907) 457-5159and his fax is (907) 455-8069. His emailis [email protected] and his website iswww.avalonalaska.com.
see FREEMAN page 12
12NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015
Shane Lasley PUBLISHER & NEWS EDITOR
Rose Ragsdale CONTRIBUTING EDITOR
Mary Mack CEO & GENERAL MANAGER
Susan Crane ADVERTISING DIRECTOR
Heather Yates BOOKKEEPER
Bonnie Yonker AK / INTERNATIONAL ADVERTISING
Marti Reeve SPECIAL PUBLICATIONS DIRECTOR
Steven Merritt PRODUCTION DIRECTOR
Curt Freeman COLUMNIST
J.P. Tangen COLUMNIST
Judy Patrick Photography CONTRACT PHOTOGRAPHER
Forrest Crane CONTRACT PHOTOGRAPHER
Tom Kearney ADVERTISING DESIGN MANAGER
Renee Garbutt CIRCULATION MANAGER
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ADDRESS • P.O. Box 231647Anchorage, AK 99523-1647
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g/t gold in trench 3 and 10 meters at 2.29
g/t gold in trench 5, with the best 1 meter
sample grading 19.45 g/t gold. Rock grab
samples from trenches returned values as
high as 26.55 g/t gold. Gold was strongly
correlative with arsenic, bismuth and tel-
lurium. Other anomalous associated ele-
ments included lead, antimony and tung-
sten, suggesting a possible intrusive-hosted
affinity similar to other gold prospects in
the Tintina Gold Belt of Alaska – Yukon.
Results of the subsequently approved
phase-2 work program are pending.
CONTANGO ORE INC. announced
today that its joint venture with a sub-
sidiary of ROYAL GOLD INC. has
approved a phase-2 exploration program at
its Tetlin gold project near Tok. The proj-
ect is located on lands leased from Tetlin
Village. Phase 1 was completed in August
and consisted of 7,500 meters of new core
drilling, primarily on locations outside of
the previously discovered Peak gold
deposit. Phase 2 will provide up to 6,000
meters of core drilling to follow up results
from phase 1. This second phase of work,
budgeted at US$4 million, will bring 2015
expenditures to about $9 million. At a 0.5
grams of gold per metric ton cutoff, previ-
ously published indicated resources
include 5.97 million metric tons grading
3.46 g/t gold, 11.0 g/t silver and 0.25 per-
cent copper. Using the same cutoff,
inferred resources include 3.85 million
metric tons grading 2.07 g/t gold, 14.28 g/t
silver and 0.235 percent copper.
Alaska RangeBRAZIL RESOURCES INC.
announced an updated mineral resource
estimate for its 100 percent-owned
Whistler gold-copper project The Whistler
deposit hosts an indicated resource of 79.2
million metric tons grading 0.51 g/t gold,
1.97 g/t silver and 0.17 percent copper. In
addition, the deposit contains an inferred
resource of 145.8 million metric tons grad-
ing 0.40 g/t gold, 1.75 g/t silver, 0.15 per-
cent copper. This new estimate largely
agrees with previously conducted esti-
mates published by KISKA METALS
CORP., from whom the project was
acquired earlier this year. The resource
estimate is based on 48 diamond drill holes
(19,870 meters). The Whistler deposit is a
structurally controlled porphyry copper-
gold deposit with gold, copper and silver
as the primary economic metals. There
have been three major intrusive episodes
that define the mineralization with the ear-
liest diorite phase being associated with
the majority of the mineralization. A major
northwest trending fault (“Divide Fault”)
separates the mineralization into two
domains, which were modeled separately
during the resource estimate. The concep-
tual pit delineated resource is reported
within a conceptual pit shell with 45-
degree pit slope angles, resulting in a strip-
ping ratio of 1.3 metric tons of waste for
every 1 metric ton of ore.
COVENTRY RESOURCES INC.
announced additional diamond core
drilling results from its Caribou Dome
copper project in the Valdez Creek District.
Drill holes CD15-12 and CD15-13 were
confirmatory holes drilled to evaluate shal-
low mineralization at Lenses 5 and 6.
Significant results include 8.9 meters at 5.0
percent copper from 33.6 meters in CD15-
12 and 3.3 meters at 10.1 percent copper
from 5.9 meters and an additional 10.6
meters at 5.4 percent copper starting at
30.6 meters in hole CD15-13. Hole CD15-
11 was a 40-meter step-out of previously
drilled holes designed to test a 250-meter-
long corridor where outcropping mineral-
ization coincides with a strong induced
polarization geophysical anomaly at Lense
2. Significant results include 0.3 meters at
3.0 percent copper from 100.7 meters in
CD15-11. The company also reported
thick, high-grade mineralization in the first
holes drilled to evaluate the Lense 7/8 tar-
get. Significant results include 0.8 meters
at 12.4 percent copper from 128.7 meters,
14.1 meters at 9.9 percent copper from
134.6, 2.4 meters at 3.7 percent copper
from 159.8 meters and 0.4 meters at 13.6
percent copper from 167.4 meters in
CD15-14. The mineralization in hole 14 is
thought to be part of a new, previously
undiscovered, lense of mineralization. A
phase two 4,000-meter drilling program
has been approved and will focus on first-
pass exploration of five very-high-priority
IP anomalies – the Lense 2, Lense 6 East,
Lense 4 West, Caribou South and Lense
7/8 targets. Additional drill results are
pending.
Northern AlaskaGOLDRICH MINING CO. announced
that placer gold production commenced at
the Little Squaw placer deposit at its
Chandalar gold project in the Brooks
Range. Updates to plant and facilities were
completed by the company and its partner
in late July and production began in early
August, continuing through Sept. 12.
Average daily production rose to about
103 ounces per day of fine gold for the
see FREEMAN page 14
continued from page 11
FREEMAN
Mining Companies
Kinross Fort Knox/Fairbanks GoldMining Inc.Fairbanks, AK 99707Contact: Anna Atchison, Manager, Community and Government RelationsPhone: (907) 490-2218 Fax: (907) 490-2290E-mail: [email protected]: www.kinross.comLocated 25 miles northeast of Fairbanks,Fort Knox is Alaska’s largest producing goldmine; during 2011, Fort Knox achieved 5million ounces of gold produced, a modernrecord in Alaska mining.
Usibelli Coal MineFairbanks, AK 99701Contact: Bill Brophy, VP Customer RelationsPhone: (907) 452-2625 • Fax: (907) 451-6543Email: [email protected]: www.usibelli.comOther OfficePO Box 1000Healy, AK 99743Phone: (907) 683-2226Usibelli Coal Mine is headquartered inHealy, Alaska and has 700 million tons ofcoal reserves. UCM produces an average of2 million tons of sub-bituminous coal eachyear.
Service, Supply & Equipment
Alaska Analytical Laboratory1956 Richardson HighwayNorth Pole, AK 99705Phone: (907) 488-1266ax: (907) 488-077E-mail: [email protected] analytical soil testing forGRO, DRO, RRO, and UTEX. Field screeningand phase 1 and 2 site assessments alsoavailable.
Alaska Rubber & Rigging Supply5811 Old Seward Hwy.Anchorage, AK 99518Contact: Mike Mortensen, GeneralManagerPhone: (907) 562-2200Fax: (907) 561-7600E-mail: [email protected]: www.alaskarubber.com.Alaska’s largest supplier of hydraulic andindustrial hose sold in bulk or assembled tospec. We also stock a large selection orwire rope, crane rope, lifting and trans-portation chain, sold in bulk or assembledto spec. We fabricate synthetic liftingslings, and supply shackles & rigging hard-ware. We sell and perform field installs ofconveyor belting. We are Arctic Gradeproduct specialists. We sell and service awide variety of hydraulic, lubrication, fuel-ing and pressure washing equipment. Wesell high pressure stainless instrumentationfittings and tube, sheet rubber, v-belts,pumps, Enerpac equipment, Kamlocks,plumbing fittings, and much more. Weperform hydro testing up to thirty thou-sand psi, & pull testing up to 350 thousandpounds. All testing comes standard withcertification & RFID certification trackingcapabilities.
Alaska Steel Co.6180 Electron DriveAnchorage, AK 99518Contact: Joe Pavlas, outside sales managerPhone: (907) 561-1188Toll free: (800) 770-0969 (AK only)Fax: (907) 561-2935E-mail: [email protected] Full-line steel and aluminum distributor.Complete processing capabilities, statewideservice. Specializing in low temperaturesteel and wear plate.
Arctic Wire Rope & Supply6407 Arctic Spur Rd. Anchorage, AK 99518Contact: Mark LamoureuxPhone: (907) 562-0707Fax: (907) 562-2426Email: [email protected]: www.arcticwirerope.comArctic Wire Rope & Supply is Alaska largestand most complete rigging supply source.Our fabrication facility is located inAnchorage with distribution Fairbanks. Wespecialize in custom fabrication of slings inwire rope, synthetic webbing/yarn , chain
and rope. Radio-Frequency Identification(RFID) is available for all of our fabricatedproducts. In addition, we offer on-siteinspection and splicing services. We carry alarge inventory of tire chains for trucks andheavy equipment.
Austin Powder CompanyP.O. Box 8236Ketchikan, AK 99901Contact: Tony Barajas, Alaska managerPhone: (907) 225-8236Fax: (907) 225-8237E-mail: [email protected] site: www.austinpowder.comIn business since 1833, Austin Powder pro-vides statewide prepackaged and onsitemanufactured explosives and drilling sup-plies with a commitment to safety andunmatched customer service.
Calista Corp.5015 Business Park BlvdSuite 3000Anchorage, AK 99503Phone: (907) 275-2800Fax: (907) 275-2919Website: www.calistacorp.com
Construction Machinery Industrial, LLC 5400 Homer Dr.Anchorage, AK 99518Phone: (907) 563-3822Fax: (907) 563-1381Website: www.cmiak.comFairbanks officePhone: 907-455-9600 Juneau officePhone: 907-780-4030 Ketchikan officePhone: 907-247-2228 Sales and service for heavy equipment forconstruction, logging, aggregate, mining,oilfield and agricultural industries through-out Alaska. CMI represents more than 40vendors, including Volvo, Hitachi, AtlasCopco, and Ingersoll-Rand.
GCI Industrial Telecom Anchorage:11260 Old Seward Highway Ste. 105
Anchorage, AK 99515Phone: (907) 868-0400Fax: (907) 868-9528Toll free: (877) 411-1484Web site: www.gci.com/industrialtelecomRick Hansen, [email protected] Johnson, Business [email protected]:Aurora Hotel #205Deadhorse, Alaska 99734Phone: (907) 771-1090Mike Stanford, Senior Manager [email protected], Texas:8588 Katy Freeway, Suite 226Houston, Texas 77024Phone: (713) 589-4456Hillary McIntosh, Account [email protected] Industrial Telecom provides innovativesolutions to the most complex communica-tion issues facing industrial clientele. Wedeliver competitive services, reputableexpertise and safely operate under themost severe working conditions for the oil,gas and natural resource industries. GCI-your best choice for full life cycle, expert,proven, industrial communications.
Greer Tank and Welding Inc. 3140 Lakeview DrivePO Box 71193Fairbanks, AK 99707Contact: Mark Greer, General ManagerPhone: (907) 452-1711Fax: (907) 456-5808Email: [email protected] offices: Anchorage, AK; Lakewood, WAWebsite: www.greertank.comGreer Tank & Welding are the premiertank and welding specialists of Alaskaand Washington. In business for over 57years, they have a long history of provid-ing an array of products and services forall contracting and custom fabricationneeds – all from their highly trained and
experienced staff.
HDR Alaska Inc. 2525 C St., Ste 305Anchorage, AK 99503Contact: Jaci Mellott, MarketingCoordinatorPhone: (907) 644-2091Fax: (907) 644-2022Email: [email protected]: www.hdrinc.comHDR Alaska provides engineering, environ-mental, planning, and consultation servicesfor mining and mineral exploration clients.Services include: biological studies; culturalresources; project permitting; NEPA; stake-holder outreach; agency consultation; andenvironmental, civil, transportation, energy,and heavy structural engineering.
Judy Patrick Photography511 W. 41st Ave, Suite 101Anchorage, AK 99503Contact: Judy PatrickPhone: (907) 258-4704Fax: (907) 258-4706E-mail: [email protected]:www.judypatrickphotography.comCreative images for the resource develop-ment industry.
Last Frontier Air Ventures1415 N Local 302 Rd., Ste CPalmer, AK 99645Contact: Dave King, ownerPhone: (907) 745-5701Fax: (907) 745-5711Email: [email protected] Base (907) 272-8300Website: www.LFAV.comHelicopter support statewide for mineralexploration, survey research and develop-ment, slung cargo, video/film projects, tele-com support, tours, crew transport, heli ski-ing. Short and long term contracts.
LyndenAlaska Marine LinesAlaska West Express
13NORTH OF 60 MINING
PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015
Fort Knox and Sam Kirstein, the director of Fairbanks Community Food Bank, are partners in improving our community.
At Fort Knox, stewardship means helping our neighbors and community, and protecting our land and water resources, too. That’s why we’re committed to the food bank.
Sam modestly says, “Good happens in the community, and I get to see it happen.” We like to think that Sam is one of the many generous individuals in the community out there making good things happen every day.
And we’re mighty glad she does.
xOur People. Our Community.
Fairbanks Gold Mining Inc.A Kinross company
Mining News Directory
see DIRECTORY page 14
Pretium also said it has closed a
US$540 million construction financing
package with the Orion Mine Finance
Group and Blackstone Tactical
Opportunities. The company was advanced
US$340 million at closing, which will be
used to continue development of the
Brucejack Mine. First production at this
high-grade underground gold mine is tar-
geted for 2017.
Hyland drilling confirmsBanyan hypothesis
Banyan Gold Corp. Sept. 17 said results
from drilling at its Hyland Gold project in
eastern Yukon Territory confirm its
hypothesis that the property hosts carbon-
ate replacement-style gold and base-metals
mineralization akin to Atac Resources’
Rau Trend to the north. Highlights from
the three holes drilled at Hyland include:
31.08 meters of 0.4 grams per metric ton
gold in hole HY-15-45; 76.34 meters of
0.32 g/t gold in hole HY-15-46; and 88.7
meters of 0.24 g/t gold in hole Hy-15-47.
Banyan said the drilling intercepted a min-
eralized lower limestone unit of the
Hyland Group Formation metasedimentary
package and elevated base metal values
were encountered at depth. Banyan said
the indications of carbonate replacement
style mineralization intersected in the 2015
drilling have become a new focus for
exploration at Hyland. The 2015 program
also included trenching at the Montrose
Ridge zone. Highlights include six meters
of 4.4 g/t gold and 24 meters of 0.47 g/t
gold in Trench MT-15-01.
Alexco cuts bonanza silver at Bermingham
Alexco Resource Corp. Sept. 17 report-
ed results from its 2015 drilling program at
the Bermingham deposit of its Keno Hill
Silver District project in Yukon Territory.
Significant true-width intercepts from this
2,595-meter program include: 4.98 meters
grading 7,462 grams per metric ton silver;
4.76 meters grading 2,357 g/t silver; and
2.35 meters of 3,774 g/t. silver. Together
with the high-grade discovery intercept
from the 2014 drill program – 6.39 meters
grading 5,667 g/t silver, Alexco said the
2015 drilling has now identified a high-
grade silver and gold-bearing zone over at
least 140 meters down-plunge across a
width of about 40 meters. The zone aver-
ages 3.7 meters thickness and remains
open both up-dip and down-dip. Alexco
President and CEO Clynt Nauman said
this discovery “may be a game changer for
the future of Keno Hill.”
Prairie Creek M&I resourcesget 32% upgrade
Canadian Zinc Corp. Sept. 17 reported
a significant increase in mineral resource
tonnages at its Prairie Creek lead-zinc-sil-
ver project in the Northwest Territories.
Incorporating the results from 5,484
meters of drilling completed in 21 holes
this year, the company said the tonnage of
the measured and indicated resources at
the mine project increased 32 percent com-
pared with a resource calculation complet-
ed in March. Prairie Creek now hosts 8.7
million metric tons of measured and indi-
cated resources, averaging 9.5 percent
zinc, 8.9 percent lead and 136 g/t silver.
Additionally, the Prairie Creek project
hosts 7 million metric tons of inferred
resource, averaging 11.3 percent zinc, 7.7
percent lead and 166 g/t silver. The
expanded resource will form the basis for
an optimized mine plan and upgraded min-
eral reserve. l
14NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015
Bering Marine CorporationLynden Air CargoLynden InternationalLynden LogisticsLynden TransportAnchorage, AK 99502Contact: Jeanine St. JohnPhone: (907) 245-1544Fax: (907) 245-1744Toll Free: 1-888-596-3361E-mail: [email protected] is a family of transportation com-panies with the combined capabilities oftruckload and less-than-truckload trans-portation, scheduled and charter barges,rail barges, intermodal bulk chemicalhauls, scheduled and chartered airfreighters, domestic and international airforwarding, international ocean for-warding, customs brokerage, sanitarybulk commodities hauling, and multi-modal logistics.
Pacific Rim Geological ConsultingFairbanks, AK 99708Contact: Thomas Bundtzen, presidentPhone: (907) 458-8951Fax: (907) 458-8511Email: [email protected] mapping, metallic mineralsexploration and industrial mineralsanalysis or assessment.
TTT Environmental LLC 4201 “B” St.Anchorage, AK 99503Contact: Tom Tompkins,
general managerPhone: 907-770-9041Fax: 907-770-9046Email: [email protected]: www.tttenviro.comAlaska’s preferred source for instrumentrentals, sales, service and supplies. Wesupply equipment for air monitoring,water sampling, field screening, PPE andmore.
Taiga Ventures2700 S. CushmanFairbanks, AK 99701Mike Tolbert - presidentPhone: 907-452-6631Fax: 907-451-8632Other offices:Airport Business Park2000 W. International Airport Rd, #D-2Anchorage, AK 99502Phone: 907-245-3123Email: [email protected] site: www.taigaventures.comRemote site logistics firm specializing inturnkey portable shelter camps – all sea-sons.
Usibelli Coal Mine100 Cushman St., Ste. 210Fairbanks, AK 99701Contact: Bill Brophy, VP CustomerRelationsPhone: (907) 452-2625Fax: (907) 451-6543E-mail: [email protected]: www.usibelli.comUsibelli Coal Mine is headquartered inHealy, Alaska and has 700 million tons ofcoal reserves. UCM produces 1 to 2 mil-lion tons of sub-bituminous coal eachyear.
continued from page 13
DIRECTORYproduction season. The 2015 production
season was 35 days but the normal produc-
tion season is about 107 days, subject to
weather. A total of roughly 4,400 ounces of
alluvial gold, equivalent to some 3,600
ounces of gold, were produced. To date the
partners have completed about 15,000 feet
of drilling at Little Squaw and outlined
10.5 million cubic yards of mineralized
material at an average head grade of 0.025
ounces of gold per cubic yard for an esti-
mated total of roughly 250,000 contained
ounces.
Southeast AlaskaPURE NICKEL INC. has indicated
that it is seeking to joint venture or sell
its 100 percent -owned Salt Chuck cop-
per-palladium project on Prince of Wales
Island. The property covers a northeast-
trending mafic-ultramafic igneous com-
plex covering a seven by 1.6-kilometer
area. The mafic-ultramafic complex
occurs in a folded succession of
Paleozoic sedimentary and volcanic
rocks and Paleozoic to Mesozoic intru-
sive rocks, which are part of the
Alexander Terrane. Reported production
from 1916 through 1941 was 296,000
metric tons of copper sulfide ore grading
0.95 percent copper, 2.0 g/t palladium,
1.1 g/t gold and 5.7 g/t silver with recov-
ery of 2.81 million kilograms of copper
and 9,000 kilograms of palladium with
credits in gold and silver. There has been
no production from the complex since
1941. In 2012 the company conducted a
six-hole drilling program that encoun-
tered high-grade gold mineralization in a
previously unidentified gold-bearing
structure in the western part of the prop-
erty, an area known locally as North Pole
Hill. High-grade intersections include
127.8 g /t gold, 57.6 g/t silver and 2.78
percent copper over 0.35 meters apparent
width. Follow-up drilling was conducted
in 2014 but no new results have been
released. Additional drilling targets have
been outlined within the area of the old
copper-palladium mine workings, partic-
ularly at depth below previous mine
workings. l
continued from page 13
FREEMAN
continued from page 11
NORTHERN NEIGHBORS
potential high-impact prospects and then
screening and prioritizing the prospects,
Galvin said. The company anticipates
executing a multi-well exploration pro-
gram that will achieve economic efficien-
cy by securing a large amount of work
over multiple years, he said. Ultimately
there could be a number of development
projects within the Great Bear acreage,
he said.
State can helpGiven the difficult exploration envi-
ronment, the state can act as a catalyst for
accelerating exploration and facilitating
moves towards the execution of develop-
ment projects, Galvin said. With a need
for more well and exploration data, the
state’s exploration incentive program has
proved to be of significant assistance in
easing the amount of capital needed at the
high-risk end of the exploration and
development life cycle. Commenting that
the value of state participation in that
high-risk component of the investment
cycle cannot be overstated, especially
given the challenges of new exploration
in an area with little existing data and no
support infrastructure, Galvin said that
Great Bear is particularly anxious that the
state should extend the credit program
that is currently set to expire in June
2016.
The state can also improve the coordi-
nation of the permitting process, elimi-
nating some redundancy in the process,
Galvin said. And the state needs to
engage with the U.S. Army Corps of
Engineers, to try to establish a reasonable
approach to wetlands dredge and fill per-
mitting, a permitting process that can
trigger the need for an environmental
impact statement and, hence, lead to sig-
nificant development timescale uncer-
tainty, he said.
With the exploration season on the
North Slope tending to shorten over the
years, additional support infrastructure
will be critical in the future, Galvin said.
Appropriate infrastructure in key explo-
ration areas could minimize the need to
construct ice roads over long distances
and would help reduce the uncertainty
over the opening dates for exploration
seasons, he said. l
PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015 15
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continued from page 10
GREAT BEAR
EXPLORATION & PRODUCTIONWeekly US rig count falls by 6 to 842
Oilfield services company Baker Hughes Inc. says the number of rigs drilling
for oil and natural gas in the U.S. the week ending Sept. 18 declined by six to 842.
Houston-based Baker Hughes said 644 rigs were drilling for oil and 198 for
natural gas. A year ago, with oil prices about double the prices now, 1,931 rigs
were active.
Among major oil- and gas-producing states, Colorado, New Mexico, Ohio and
Utah each gained one rig.
Louisiana and North Dakota lost three rigs apiece, Pennsylvania declined by
two and Kansas and Texas were down one each.
Alaska, Arkansas, California, Oklahoma, West Virginia and Wyoming all were
unchanged.
The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.
—ASSOCIATED PRESS
Legislature next year, and the working
group is listening to affected parties in
advance of the 2016 session.
Spending money to make moneyJohn Barnes of Hilcorp told legislators
the state’s investment tax credits demon-
strate that you have to spend money before
you get money. Since Jan. 1, 2012, when
Hilcorp closed on Chevron’s Cook Inlet
properties, the company has spent about a
billion dollars in Cook Inlet and produced
some 45 million barrels of oil equivalent,
he said. The company closed on
Marathon’s Cook Inlet properties in 2013,
and in 2014 acquired three BP properties
on the North Slope.
The investment Hilcorp has made in
Cook Inlet has resulted in more activity and
more wells on production, Barnes said. All
Hilcorp crude oil is sold to the Tesoro refin-
ery in Nikiski and used to produce products
such as gasoline, jet fuel and diesel, he said.
When Hilcorp took over operations in
Cook Inlet oil production from its proper-
ties was some 6,000 barrels per day; today
that production is more than 12,000 bpd,
Barnes said. When Hilcorp took over gas
production the properties produced some
60 million cubic feet per day; today that
production is about 140 million cubic feet
per day.
Changed playing fieldBarnes said the investment credits
changed the playing field in the inlet.
The inlet was dying, he said, with warn-
ings we could run out of natural gas and
have to import it to meet local needs.
Companies had essentially stopped drilling,
and Barnes said it was amazing how fast
Cook Inlet production declined, once peo-
ple stopped drilling. Major producers —
Chevron and Marathon — were looking
elsewhere, with Cook Inlet no longer
deemed crucial to their business, and were
in something of a caretaker mode, he said.
With investment credits, companies
came into the inlet, acquired other compa-
nies and leases and drilled wells, Barnes
said.
Hilcorp was attracted to Alaska because
the company looks for places it can acquire
legacy fields with potential at a reasonable
price — and acquire those fields directly
from major producers. That’s important,
Barnes said, because if others had bought
the fields from the majors they would have
been worked hard before Hilcorp acquired
them.
Since it came to Alaska, Hilcorp has
drilled some 55 wells onshore, he said.
Asked if the state’s tax credits were
more generous than they needed to be,
Barnes said he really didn’t know. When
Hilcorp looked at coming in there was a tax
structure in place, he said, and the company
looked at the value of the opportunity,
which included good investment tax cred-
its.
He said the cost of operations, product
price and tax structure are linked, and cost
of operations is the only area Hilcorp can
control.
As for the suspension in payment of
$200 million in tax credits, Barnes said that
just puts uncertainty into the equation.
Asked if a change in the credit system is a
change to the overall tax system, Barnes
said absolutely, that any change in the tax
climate as you try to make long-term finan-
cial decisions has an impact.
The exploration sideJohn Hendrix, general manager of
Apache in Alaska, said Apache is explor-
ing, which poses risks and requires
investment patience, and the right timing,
which means stability is important.
He referred to the credits passed for
Cook Inlet in 2010 as rebates, because, he
said, you have to spend money to get
money back.
Apache purchased existing leases in
2010 and acquired significant acreage in
2011. The company has since been shoot-
ing seismic, with 1,100 miles of data
acquired from 2011 through 2014. And
yes, he said, the tax credits helped.
He also said the seismic Apache has
shot is the state’s data and provides the
state and Apache and its partners the abil-
ity to have a subsurface road to resources.
The nodal technology Apache brought
to the inlet enabled the company to shoot
seismic and tie in marine and onshore
seismic. This is the first seismic shot in
the inlet that ties onshore and offshore
together, he said.
Work done so far has enabled Apache
to generate a few prospects he said,
adding that the company is waiting on
permits right now.
Seismic workHendrix said seismic doesn’t tell you
there’s oil. You also have to look at corre-
lations with existing wells and at out-
crops, which Apache is doing.
He said predictive regional reservoir
maps have been completed for the
Hemlock and Tyonek formations and that
Beluga and Sterling evaluations are in
progress.
He said Apache still hasn’t received a
permit it applied for last fall for a road
and the oil price continues to drop.
Hendrix warned legislators about doing a
bait and switch, changing the rules from
16 PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015
O U R P A S S I O N I S
EXPLORATION
judypatrickphotography.comCreative photography for the oil & gas industry.
907. 258.4704
continued from page 1
INLET CREDITS
see INLET CREDITS page 17
when the company did a large lease pur-
chase.
He said the challenge now is cranking
out an economic model, and since Apache
isn’t solely an Alaska investor, the com-
pany will invest where there is a stable
situation.
We need to have tax credits, he said,
but also said he didn’t think it was right
for someone to apply for tax credits if
they haven’t paid invoices. People should
be here to drill for oil, not to drill for tax
credits, he said.
Hendrix said that if tax credits went
away this year he thought Apache would
be looking very hard at investing at all; a
change over three years would give the
company a chance to plan, he said.
He characterized exploration as build-
ing wealth for Alaskans by finding
resources; production, he said, brings
income but doesn’t add wealth.
BlueCrest: Time neededJ. Benjamin Johnson of BlueCrest
Energy said the Cook Inlet tax credit pro-
gram has been effective, but it will take
time to bring on more natural gas
resources or there will be a crisis in the
future.
Southcentral doesn’t have a way to
bring natural gas in, he said, although
there is an opportunity to get some gas
out. The ability to handle excess gas sup-
ply is important because it can’t be turned
off and on immediately, he said.
If tax credits were eliminated immedi-
ately there would be a problem for
BlueCrest, which has committed a lot of
money, and without credits there would
be a shortfall in the company’s ability to
pay, and would also result in the loss of
the Spartan 151 jack-up drilling rig.
Pending gas sales agreements would be
delayed or abandoned, with resulting
higher natural gas prices and a lower
diversity of gas supply, he said.
Johnson said that discoveries do not
guarantee production and noted that there
have been some good discoveries in Cook
Inlet, but not all have been developed.
Long time to breakevenJohnson noted that there is a long cash-
flow cycle for discoveries, with money
pumped in for exploration and then for
development. Cash flow is negative, he
said, until production begins, but
breakeven doesn’t occur until the compa-
ny has recovered all of the money it’s
spent.
The Cosmopolitan project BlueCrest is
developing is about two-thirds finished
with construction, he said, and the com-
pany is about to bring up a big drilling rig.
First production is projected for April of
next year. Crude oil from Cosmopolitan
will go to Tesoro, which is importing
about two-thirds of the crude oil it
processes.
Johnson said without tax credits there
would already be a significant natural gas
shortage in Cook Inlet. And, he said, new
gas needs to be developed now to prepare
for the future.
Tax credits were crucial to BlueCrest,
he said, and with the current uncertainty
about credits development of the shallow
natural gas at Cosmopolitan is on hold.
The Spartan 151 is the only jack-up rig
in Cook Inlet and is in Seward, but if gas
drilling at Cosmopolitan does not begin in
2016, the rig will leave the inlet, he said.
And BlueCrest can’t commit to natural
gas development unless it has existing tax
credits or a reasonable alternative, he
said. Commitments were made by folks
like BlueCrest based on tax credits; if
there are changes, there should be reason-
able time to allow ongoing projects like
Cosmopolitan to adjust.
The company has no confidence in
what will happen next year, he said, and
has decisions it needs to make before the
end of the year.
Asked about the possibility that exist-
ing credits could be continued and pro-
duction taxes increased, Johnson said
BlueCrest understands that production
taxes may need to rise and has factored
that into the company’s future plans.
There is currently no production tax on
Cook Inlet crude oil.
No Furie without tax creditsBruce Webb of Furie Operating Alaska
told legislators that the company
wouldn’t be here without the tax credit
program; they were a selling point for
European investors in the project, he said.
Furie couldn’t have raised the first 100
million euros without the tax credits
because those credits meant investment
was backed by the state.
It’s been a bumpy road for Furie, he
said, which had raised initial capital and
started to talk to utilities when Hilcorp
swallowed the natural gas utility market
in 2012, leaving the company with what
Webb called a tough decision on whether
to stay and hope that the gas utility mar-
ket opened up.
He said Furie is now on the cusp: It has
development, but it’s not completely paid
for and its first natural gas contract
doesn’t start until April.
The company had to take a $200 mil-
lion loan, which was pretty expensive
money, and requires sale of 10 million
cubic feet a year just for debt service. The
contract it has with Homer Electric
Association is some 4.4 million cubic feet
a year, so for the first few years the com-
pany will be operating at a deficit, he
said.
Right now the company has commit-
ted tax credits for the next several years to
help finance future wells, Webb said. The
company was in discussion with finan-
ciers when the $200 million in credit pay-
ments was stalled, which impacted
financing discussions.
Furie wouldn’t be here without the tax
credits, he said. If those credits go away
the company is stubborn enough to stay
and work through it, but without credits
future development would be decelerated
and the company’s breakeven would
move farther down the road.
—KRISTEN NELSON
PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015 17
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INLET CREDITS
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He now has to come to the
Legislature and un-convince us of what
we became convinced of in the prior
administration. A lot of legislators were
in the same position I was in, very skep-
tical but at the end of the day becoming
convinced it was the right thing to do by
bringing in TransCanada. Gov. Walker
now needs to convince us we made the
wrong decision.
Petroleum News: What concerns, ifany, do you have with this buyout plan?
Hawker: My current concern is that
the Legislature has received no analytic
information on which to base a judg-
ment. Right now it’s just a popularity
poll. Do you like TransCanada or don’t
you. The administration has provided us
nothing on which to base a sound eco-
nomic judgment.
We heard in the quarterly briefing
that the administration has had a secret
study conducted by Black & Veatch that
gave them their reasons for wanting out
of the transaction. But that study could
not be made available. I think that is
problematic. I think the governor is
going to have to find a way to remove
the veil of confidentiality of that study
so the Legislature and the public have a
basis for the decision.
Petroleum News: Why would this beconsidered confidential? It’s easy tounderstand when it comes to the AKLNGpartners.
Hawker: I asked that question in the
quarterly briefing. The response I
received was that in order to perform
that analysis, they had to rely on and
incorporate information that was propri-
etary to TransCanada. I personally ques-
tion that conclusion because the analysis
should be performed on all of the publi-
cally available information and perform-
ing economic analysis as to whether the
economics inherent in the MOU we are
working under are valid, are sound, then
compare those economics with the eco-
nomics of going at it alone, which
involves nothing from TransCanada, so I
do not understand why this information
is confidential at the moment.
Petroleum News: Also, it looks asthough Walker’s newly minted consultantRigdon Boykin is getting a stronger role.Are you comfortable with this at$100,000 a month?
Hawker: Actually, it’s $120,000 a
month. The Legislature was formally
informed for the very first time last
Wednesday that Mr. Boykin was the lead
in all project negotiations and activities.
Mr. Fauske was identified as our point
of contact for daily questions and con-
cerns.
At that meeting, I raised a question
and concern — and I think it remains
valid — and that is, is it right and best
for the state of Alaska to have a third
party in charge of these critical negotia-
tions and a third party who is not
accountable to the citizens of the state of
Alaska through either being elected to
office or being a commissioner who is
appointed by the governor, confirmed by
the Legislature and statutorially obligat-
ed to support the state’s constitution and
perform the duties that are statutorially
imposed on those agencies? A third-
party consultant has none of those con-
straints, and that’s, I think, problematic
right now.
Petroleum News: So would you
continued from page 5
HAWKER Q&A
see HAWKER Q&A page 19
rather have this point person be some-one from say, AGDC?
Hawker: When the previous adminis-
tration proposed SB 138 and the
Legislature ultimately passed it, the con-
clusion was to vest the commissioners of
Natural Resources and Revenue very
specific and strong responsibilities for
project management and execution. The
approach taken with Mr. Boykin has
minimized that participation and trans-
ferred those responsibilities to this third-
party contractor. Also AGDC, through
HB 4 a number of years ago that I basi-
cally sponsored and wrote, has many
responsibilities. AGDC has been made,
as necessary, a very powerful organiza-
tion, but AGDC was never given the
authority to negotiate on behalf of the
Department of Natural Resources, the
regulator; the Department of Revenue,
the tax collector; or the Department of
Law. AGDC was created to work with
those organizations and be an entity to
have very strong and clear powers to
build a project. We made it very clear —
we were not transferring that constitu-
tional authority from the state agencies
where we continue to vest that authority
again for resource management, resource
regulation.
Petroleum News: So where would youlike to see the lead negotiation comefrom. A chief of staff? DNR? Revenue? Acollaboration?
Hawker: What I would do myself or
what I would want to see is really not a
relevant question because the public has
elected Gov. Walker, has told him they
want him to pursue this his way and he
is doing the right thing by that. He is
pursuing this project the right way. As a
legislator, what I want to see is success. I
want to see his people doing it his way:
bring a project to the Legislature that is
viable, that we have a means of financ-
ing, that we have ready, willing and able
to execute.
Petroleum News: That meeting inPalmer was a six-hour hearing that wentinto the morning the next day. What wasyour take on that meeting?
Hawker: In the six-hour hearing that
ended about 1:30 in the morning, we
covered the entire agenda. I think the
meeting got off to a rough start with the
administration’s very strong indicting
statements with the industry’s lack of
progress. I think the administration
thought that was going to turn the
Legislature against the industry players
who were there. It kind of backfired. I
don’t think we took that tone very well
because we do understand that schedule-
driven projects are prone to failure. We
don’t want a schedule-driven project. We
want to talk about the merits. These are
complex, difficult negotiations and can
be expected to take a long time to
resolve.
Petroleum News: What do you thinkbrought it around to a dialogue and anupdate from the administration?
Hawker: Every time one meets and
every discussion is progress in the dia-
logue. It was very important for the
Legislature to get an understanding from
the administration of who is in charge,
who is discussing negotiations, how are
they fulfilling the expectations we had
under SB 138. That was part of the dia-
logue.
We were also able to listen to the
individual producers and ask them about
their role in these negotiations. We were
able to get a much more clear under-
standing of just who is in fact negotiat-
ing on behalf of the state of Alaska. We
were able to get some clarity of what
will not be discussed in the coming spe-
cial session, specifically that the admin-
istration is not willing to introduce a
constitutional amendment until such time
as they have a completely papered proj-
ect to introduce along with it. That was
an important question for us so we can
plan what we need to plan for in a fall
special session.
We got clarity from the administration
on TransCanada. And I think it’s the first
time it’s been said on the record that
they want out of the TransCanada
arrangement. I don’t think that’s ever
been officially on the record and here we
are less than a month from a special ses-
sion. We needed to force some clarity
from the administration and we got that.
Petroleum News: As LB&A chair, doyou have any plans for assisting theLegislature in understanding what’sahead, particularly with AKLNG, by hir-ing consultants?
Hawker: Absolutely. The Legislative
Budget & Audit Committee is the leg-
islative entity who is provided the neces-
sary budgetary authority to engage con-
sultants in the Legislature in all of our
activities. We’ve got education consult-
ants on board. We’ve got Medicaid con-
sultants on board. We currently have
consultants on board that supported the
production tax debates and the AKLNG
development to the state, and that’s ena-
lytica. They have truly provided out-
PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015 19
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continued from page 18
HAWKER Q&A
see HAWKER Q&A page 21
20 PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015
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business customers, but does not have data limits, according to ACS spokeswoman HannahBlankenship. The company has no plans to move into the high-speed consumer market.
Global Geophysical announces key leadership changeGlobal Geophysical Services Inc. announced that Richard White has retired as president and
CEO and as a member of the board of directors after nearly three years of service to the com-pany. The board has selected Ross Peebles as interim CEO, effective immediately.
“I have complete confidence and trust that Ross will continue to place the company in thebest position to fully realize its potential by capitalizing on our unique technology and the
diverse and extensive experience of our employees,” said White. Prior to this promotion, Peebles was senior vice president and chief
operations officer overseeing Global’s North America, Latin Americaand Eastern Hemisphere operations in addition to the company’s seis-mic data library and E&P Services group.
“I am grateful to have had the opportunity to work with Richardand congratulate him on his retirement,” said Peebles. “While the cur-rent oil and gas environment remains challenging, innovation, excep-tional operational performance, and strong customer relationships willbring us through these tough times and position us to be a leader inproviding fast, actionable and affordable seismic to the E&P industry.”
Crowley opens two new centers in JacksonvilleCrowley Maritime Corp.’s logistics group is opening two new warehouses in Jacksonville,
Florida, to better serve the needs of its full and less-than-container load customers shippingcargo through, or within the northeast Florida area.
The first of the two facilities opened Sept. 15 and is located at 1350 Tradeport Drive, on thecity’s northside near Jacksonville International Airport. It replaces the company’s former 3700Port Jacksonville Parkway location, and offers customers increased capacity and yard spacealong with 12 dock-high doors for faster cargo handling. The 49,702-square foot facility willoperate Monday through Friday from 8 a.m. to 5 p.m. and offers various warehousing and dis-
see OIL PATCH BITS page 22
ROSS PEEBLES
standing service to the state but their
services have tended to be limited to
economic analysis and comparisons of
tax regimes and economic analysis of the
proposed AKLNG project.
That consulting group does not neces-
sarily bring to the table a full spectrum
of experience in the entire value chain
and the documentation of a complex
international LNG project that involves a
sovereign entity, the sovereign being the
state.
I have been investigating, identifying
and talking to consulting firms that bring
that latter experience to the table. I’m
currently in conversations with those
folks. Before we have fully papered
agreement in front of us with all of the
necessary commercial agreements being
considered I expect to have a qualified
consultant on board who can help us
wade through that level of a project.
Petroleum News: Speaking of some-one who understands the value chain,there is one person in the state, thoughhe works for the Kenai PeninsulaBorough and he used to work for you.Larry Persily. Even as he does work forthe borough what kind of statewide valueis there to having Larry back in Alaska?
Hawker: I have great respect for Mr.
Persily. Mr. Persily is the go-to guy in
the state of Alaska for these sort of
things. He’s extremely competent. He’s
extremely versed in these subjects. He
puts a great deal of his personal career
into it. He brings a non-partisan credibil-
ity to the debate and dialogue.
To that end, it’s one of the reasons
why Mr. Persily is in such demand on
these issues. It’s a very good thing to
have him full-time in this state with a
primary focus of his relationship with
the Kenai Peninsula Borough to help
facilitate the advancement of this project.
Petroleum News: Looking furtherahead to the coming regular session nextyear, there will certainly be discussionsand a bill to rewrite how the stateemploys tax credits in its tax code. Howdo you feel about that?
Hawker: The devil will be in the
details. I think it is always incumbent on
the Legislature to review the incentives
that we provide for economic develop-
ment in this state. We look at the incredi-
ble success that was achieved with the
Cook Inlet Recovery Act in getting a
natural gas storage facility established, a
storage facility that is used almost every
day in the winter to keep gas flowing in
Anchorage, a bill that inspired a resur-
gence of investment in Cook Inlet. We
accomplished the mission.
It’s absolutely incumbent upon us to
take a look and ask are those economic
incentives still the right incentives for
the right amount and do they target the
right activities. It’s a constant process the
Legislature needs to go through. I cer-
tainly expect to see that occur next ses-
sion, both for Cook Inlet and the North
Slope. I think it’s inevitable there will be
some changes that come out of that. But
we really can’t evaluate what’s right and
what’s wrong until we sit down and put
all the pieces on the table and have an
economic discussion and not simply a
partisan political discussion.
Petroleum News: Do you think itbecame partisan when the new adminis-tration took over?
Hawker: I don’t think it’s any more or
less partisan than it has been in the past.
It’s always been good sport to beat up
the oil industry in the state. They are the
biggest kid on the block. The state is in
fact dependent on them. They are obvi-
ously targets for the political process
here.
Petroleum News: Circling back to thespecial session, what would your goalsor priorities be for the coming specialsession for advancing a gas line?
Hawker: The Legislature and the gov-
ernor must resolve the TransCanada
issue. Are they in or are they out.
In order to paper a project, all the
sponsors need to know who the partners
are. Is TransCanada a member of this or
not? And if they are not does the state
have the money to continue as a partner
in this? So these things need to be
resolved up front. Between now and the
end of the year the thing we can resolve
is the TransCanada agreement. We need
to make that decision: in or out. If they
are out, then how are we going to
finance our share of the money required
up to FEED. We’ve heard that being up
to $1 billion up to FEED.
A major hurdle, which has become a
stumbling block in AKLNG negotiations,
is whether or not the state exercises its
ability to permanently lock in royalty in
kind in order to support this project. That
is a decision that is vested with the com-
PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015 21
continued from page 19
HAWKER Q&A
see HAWKER Q&A page 23
covered? Are the pools really capable of
producing in paying quantities?
In its July 30, 2013, discovery state-
ment, Furie claimed that the KLU No. 3
well had encountered 29 horizons in the
Sterling and Beluga formations that the
company believed to be previously undis-
covered gas pools. Of those 29 potential
horizons, the company said that it had
conducted modular formation dynamic
testing on 28 and flow tests on six.
When state officials reviewed a
Schlumberger report attached to the dis-
covery statement, they found “no evi-
dence of MDT or flow testing” for 10 of
those horizons and eliminated those 10
from consideration. Even if the testing had
occurred, the state determined that only a
flow test could conclusively define a “gas
pool” as required under state regulations.
Only flow tests consideredOf the six horizons that Furie flow test-
ed, the state found two to be “water-bear-
ing, not an accumulation of oil or gas.”
The four remaining horizons met the defi-
nition of a “pool.”
They are: Horizon 6 in the Sterling
from 4,190 feet to 4,225 feet, Horizon 25
in the Beluga from 5,941 feet to 5,959 feet,
Horizon 26 in the Beluga from 5,999 feet
to 6,005 feet and Horizon 28 from 6,964
feet to 6,998 feet, using measured depths
in the well.
While those four pools may have been
encountered by previous wells, the state
determined that “no credible well tests
were found to have been performed on
those horizons in any surrounding well,”
which meets the standard for “undiscov-
ered.”
Using third-party reserve estimates and
projected natural gas prices, the state deter-
mined that the natural gas contained in the
four pools would be commercial viable.
The state originally provided a lower
royalty rate for discovery wells but
repealed the reduction in 1969, after the
discovery of the Prudhoe Bay field. The
state re-instated the reduction through the
Cook Inlet Discovery Royalty program
enacted in 1996 and 1997.
The KLU No. 3 exploration well was
drilled into the Corsair structure, which
had been penetrated by seven prior explo-
ration wells, according to the Division of
Oil and Gas.
Of those seven wells, four encountered
gas-bearing intervals: State SRS No.1
drilled by Shell in 1965, Tern A SRS No. 1
drilled by Phillips in 1982, South Cook
Inlet State No. 2 drilled by ARCO in 1993
and Kitchen Lights Unit No.1 drilled by
Furie in 2012.
In the most recent plan of development
for the unit, from November 2014, Furie
said that the KLU No. 3 well — drilled in
2013 — had produced 15.83 million cubic
feet during a four-point test and that gas
samples taken during the test were 99 per-
cent methane.
After several years of drilling and sev-
eral years of construction, Furie has said it
expects to bring the Kitchen Lights unit
into production from the KLU No. 3 well
as soon as November 2015, in time to
meet contractual commitments that begin
in January 2016. l
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continued from page 20
OIL PATCH BITS
continued from page 1
WELL CERTIFIED
a purchase order for some $1 million
of 48-inch pipe for testing, and that
pipe was expected to arrive early
next year. (See story in Sept. 20
issue.)
Butt said a 48-inch line would
cost more to build than the 42-inch
line AKLNG has been studying, but
would cost less to operate. He also
said that because of the extra weight
in the line — a much thicker pipe is
required to handle natural gas pres-
sures than that used for the 48-inch
trans-Alaska oil pipeline — there
were concerns about laying the 48-
inch line across Cook Inlet.
The federal Pipeline and
Hazardous Materials Safety
Administration will need to have
confidence that a 48-inch line will
work, Butt said, estimating that it
will take six to eight months of test-
ing the 48-inch pipe to get to the
same level the project is with tests of
the 42-inch line.
Another issue at the Sept. 9
update was discussions the state is
having with TransCanada about buy-
ing out the pipeline company so the
state would have a full 25 percent
interest in the project and what the
governor has described as a seat at
the table.
The governor said Sept. 23 that
he would call a special session to
address the TransCanada buyout
issue, but details had not been
announced when Petroleum News
went to print with this issue.
—KRISTEN NELSON
continued from page 1
48-INCH LINE
After several years of drilling andseveral years of construction,
Furie has said it expects to bringthe Kitchen Lights unit into
production from the KLU No. 3well as soon as November 2015, in
time to meet contractualcommitments that begin in
January 2016.
achieve growth and collective prosperity
by concentrating on four key areas: eco-
nomic and fiscal competitiveness;
enhanced market access; environmental
sustainability; and aboriginal engage-
ment.
Call for pipeline projectsMarket access was the primary trust
when CAPP President Tim McMillan
argued that whoever wins the election on
Oct. 19 — the governing Conservatives,
Liberals or New Democratic Party —
must take an active role in advancing
pipeline projects, or risk putting the
national economy in jeopardy.
He told the National Post said the log-
jam of major export pipelines must be
freed up to secure the industry’s competi-
tive position.
“If not ... we are out of the game,” he
warned.
The failure to introduce more pipelines
has undercut the crude prices fetched by
Canadian producers by an average US$13
per barrel lower than U.S. crude this year,
further squeezing the margins in a
depressed oil price environment.
The CAPP paper said strong growth in
Canadian and U.S. oil production will
become “constrained in the next few
years” without new and expanded
pipelines.
Despite the hammering commodity
prices have taken and the “on-going car-
bon reduction movement,” CAPP said oil
and gas “will continue to be in demand for
the foreseeable future,” which puts pres-
sure on the industry to find new ways to
link supplies with domestic and interna-
tional markets.
The organization also said improved
infrastructure will enable Canada to dis-
place oil imports, which account for 80
percent of consumption in Quebec and
Atlantic Canada, reinforcing the indus-
try’s economic role, which currently
includes 550,000 direct and indirect jobs
and C$18 billion in annual payments to
the federal and provincial governments.
Production target downBut the combination of stalled
upstream and pipeline projects has forced
CAPP to lower its production target by 1.1
million barrels per day to 5.3 million bpd
by 2030, although a fundamental change
could see some revisions, McMillan said.
However, he suggested the economics
have become even worse since June, forc-
ing CAPP to “make a judgment call on
whether this is a meaningful change.”
For now, oil has been pushed off top
rung of Canada’s export contributors,
returning that role to the automotive
industry, while capital investment has
tumbled to C$45 billion from C$74 billion
last year, with the oil sands sector drop-
ping by 25 percent.
“As the big projects drop off and noth-
ing picks up the slack, we could see more
cuts,” McMillan said, referring to the loss
of 35,000 jobs in the current slump.
He said the industry is now coming to
terms with the prospect of a “lower for
longer” oil price outlook.
‘Heavily engaged’ in AlbertaMcMillan said CAPP is “heavily
engaged” with the New Democratic Party
government in Alberta as it prepares to
deal with panels appointed to make rec-
ommendations on climate change and
royalties.
The organization is also gearing up to
make its case to the United Nations
Climate Change Conference in Paris that
starts in late November that of all the
countries exporting crude to the United
States only Canada imposes carbon pric-
ing, he said.
McMillan also argued that despite the
opposition in Canada to export pipelines,
Canada believes it can lift 2 billion people
in emerging economies from energy
poverty by supplying LNG and crude oil.
CAPP, in responding to the common
wisdom, said oil and gas producers are
“committed to developing solutions the
world needs for a cleaner energy future.”
In its own defense, CAPP also noted
that Canada is responsible for only 2 per-
cent of the world’s greenhouse gas emis-
sions, compared with 10 percent in the
European Union, 15 percent in the United
States and 24 percent in China.
Of Canada’s emissions, 25 percent
were attributed to transportation and 21
percent to the producing sector and 4 per-
cent to pipelines and refineries.
The paper said the oil sands industry,
widely deemed to be the major culprit, has
invested C$1 billion to share 777 tech-
nologies and best practices to find innova-
tive ways to reduce GHGs, minimize the
impact on land, reduce water use and
improve the management of often-toxic
tailings from mining operations.
CAPP said climate change is “a global
challenge that needs to be addressed with
broadly-based policies that consider pro-
duction and consumption,” adding that
“everyone has a role to play.”
On the sensitive issue of industry rela-
tions with First Nations, the paper noted
that in 2013 and 2014 CAPP oil sands
members had direct business dealings
estimated at C$3.7 billion with 327 abo-
riginal companies in Alberta.
It said the industry is committed to
building “positive and beneficial relation-
ships” with aboriginal communities
“where we work.” l
continued from page 1
CAPP’S CASE
PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015 23
missioner with the Department of
Natural Resources (Mark Myers).
We hear industry telling us that the
decision needs to be made now as was
contemplated when we passed SB 138
so that they have the ability to go for-
ward and construct all of the gas balanc-
ing off take and governance agreements
that the project needs to have. They have
to know if the state owns gas and will
have gas to be co-equal partner in the
project.
They understandably need to know
this in order to progress negotiations. We
heard from the Department of Natural
Resources that they were extremely reti-
cent to make any RIK decision until
after any project is fully papered and
proposed to them. So we’ve got a chick-
en and the egg situation. DNR wants a
fully papered project before they make
an RIK decision; the partners, the stake-
holders, the sponsors of the project want
an RIK decision so they know what kind
of project to endorse. So we’ve got a
major stumbling block here that some-
what has to get resolved in order to
break the deadlock of negotiations.
The state needs to have a conversa-
tion about the RIK commitment. I’d like
to see both of those issues resolved by
the end of the year. I’d like to see an
agreement fully papered and brought to
the Legislature sometime during the 90-
day legislative session, so we can have
our consultants start working on it in
anticipation of an AKLNG special ses-
sion that would occur shortly after the
conclusion of the legislative session.
That would be the perfect world accord-
ing to Mike Hawker. l
continued from page 21
HAWKER Q&A
including status reports on activity to be
filed May 1 and Nov. 1 of each year until a
final completion report is filed and provi-
sion of a certified as-built survey of all
improvements within one year of place-
ment.
Accumulate Energy is a wholly owned
subsidiary of Australian-based 88 Energy,
which said in a Sept. 17 statement that two
key permits remain to be closed out for the
project, an oil discharge prevention and
contingency plan and a permit to drill.
This will be the first well in the state for
Accumulate Energy.
The well will be drilled on a tract
acquired at a state oil and gas lease sale by
Burgundy Xploration, with joint venture
partner Accumulate Energy Alaska as oper-
ator. Burgundy acquired 98,182 contiguous
acres of state oil and gas leases near White
Hills in 2013 and 2014, an area where
Unocal drilled five wells beginning in 2008.
Burgundy took two tracts in the state’s
2013 North Slope areawide lease sale, was
assigned four other While Hills leases in
late 2013 and took 90,720 acres in the
state’s 2014 North Slope areawide sale.
Current state lease records show
Accumulate Energy Alaska as working
interest owner of 85,909 acres and
Burgundy as WIO of 12,273 acres.
The company said in its application that
it would use Nabors rig 105AC or a rig with
similar specifications, but 88 Energy said in
a Sept. 10 statement that it had executed a
rig contract with Kuukpik Drilling for the
well.
The company said in an August state-
ment that “definitive binding documenta-
tion has been executed with Bank of
America” for funding the Icewine project
up to $50 million.
The division said in its decision that the
dates in Accumulate Energy’s application
are approximate and may change due to
weather, logistics requirements or regulato-
ry decisions, but said it expects that while
earlier dates may change, dates for finishing
drilling, demobilization and cleanup would
remain the same.
Accumulate’s schedule listed pre-season
reconnaissance in July; permitting from
February through mid-September; potential
maintenance of pad and access roads in the
second half of August; mobilization of
camp and drilling rig in the second half of
September; exploration drilling from mid-
October through mid-December, and demo-
bilization in the second half of December.
The Division of Oil and Gas said the
plan of operations for the project describes
one vertical well “to core potentially petro-
liferous zones in both unconventional and
conventional reservoirs,” with the goal of
the pilot drilling program “to analyze the
potential productivity, deliverability, and
commerciality of the greater Icewine proj-
ect area.”
The division also said that depending on
results from initial drilling and time remain-
ing in the season, Accumulate “may drill a
lateral well, sidetracks, or additional pene-
trations from the same exploration pad.”
The division said Accumulate plans to
use the existing Franklin Bluffs pad and
White Hills staging area, but that the final
location of the Icewine No. 1 well will
ensure that it does not intersect with the drill
path of the Franklin Bluffs No. 1, a shallow
well drilled in 2005 by the federal Bureau of
Land Management.
The division said the well is planned “as
a single vertical well drilled into an uncon-
ventional shale oil zone and potential liquid
conventional hydrocarbon zones.”
—KRISTEN NELSON
24 PETROLEUM NEWS • WEEK OF SEPTEMBER 27, 2015
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DPP, it must prepare an environmental impact statement for
the development program Hilcorp is proposing for Liberty.
The federal agency said it intended the issue a notice of
intent to prepare an EIS Sept. 25, after Petroleum News
went to print. According to the agency, the EIS will likely
take “several years” to prepare and “will be closely coordi-
nated with numerous federal and state agencies and consul-
tations with appropriate federally recognized tribes.”
Gravel islandHilcorp is proposing to develop the Liberty prospect
from an artificial 9.3-acre gravel island constructed in 19
feet of water some 5 miles off the North Slope coast.
A revised version of the plan from September 2015
describes a project capable of processing and exporting
between 60,000 and 70,000 barrels of oil per day. The
island would have slots for 16 wells, with the expectation of
drilling five to eight production wells, four to six injection
wells and as many as two disposal wells at 15-foot intervals.
While natural gas would be used for field activities and
reinjection, oil would be shipped through a new 12-inch
pipeline to the existing Badami Sales Oil Pipeline. The new
pipeline would be approximately 7.1 miles long, of which
5.6 miles would be offshore.
In its plan, Hilcorp described Liberty as the “largest
delineated but undeveloped light oil reservoir on the North
Slope,” capable of producing between 80 million and 150
million barrels over a 15- to 20-year field life and reaching
peak production within two years.
Another attemptShell Oil Co. discovered the Liberty field between 1982
and 1987, through a four-well delineation campaign into the
Kekiktuk formation from Tern Island and Goose Island.
BP Exploration (Alaska) Inc. acquired tract OCS-Y1650
in a September 1996 federal lease sale and began permitting
the Liberty No. 1 exploration well. The company drilled the
well in February 1997 later confirmed a 120 million barrel
discovery at the field.
The company submitted a DPP to the U.S. Minerals
Management Service, BOEM’s predecessor, in February
1998 calling for an offshore gravel island but suspended the
project in July 2001. After several years of additional study,
BP proposed a new plan in August 2005. The ambitious
plan would have used ultra-extended-reach drilling to reach
the reservoir from an onshore pad at the satellite drilling
island on the Endicott causeway. The idea was to harness
recent advances in drilling technology to avoid the potential
environmental impacts of an island.
With federal approval of the proposal, BP expanded the
Endicott facilities and commissioned a drilling rig, although
a review of the program following the Deepwater Horizon
blowout in the Gulf of Mexico created additional uncertain-
ty. BP suspended the project in November 2010, abandoned
the ultra-extended-reach drilling proposal in June 2012 and
revived the idea of an artificial gravel island in late 2013. By
suspending the project in 2012, the federal government
gave the company until the end of 2014 to submit a new
DPP, by which time Hilcorp had acquired a 50 percent inter-
est in Liberty.
As operator, Hilcorp filed the new DPP and will lead the
project going forward. l
continued from page 1
LIBERTY PLAN
continued from page 1
ICEWINE WELL