page

9Mounties ride into thick ofelection with criminal probe

Vol. 11, No. 2 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of January 8, 2006 • $1.50

● C A N A D A

● J U N E A U

B R E A K I N G N E W S

● C O O K I N L E T

4 Oil found at Big Foot: Chevron,Anadarko, Plains hit 300 feet ofnet oil pay in deepwater Gulf prospect 225 miles south of New Orleans

4Eminent domain draws six pre-files: Four House bills, two

Senate bills; all restrict use of power; one bill extends it for O&G resources

7 North Slope output down: ANS oil production dropped 3.6percent in December, to 859,838 bpd, Prudhoe has biggest drop

CO

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UK

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LLC Hearings on grand scale

On brink of dual reg processes for Mac project; Arctic gas future on the line

By GARY PARKFor Petroleum News

eady or not, residents of northern Canada —along with regulators, lawyers, consultants,engineers, politicians, environmentalists andothers — are about to be plunged into an epic

round of hearings that are unprecedented for anycapital undertaking in Canadian history.

On the line is a decades-long dream of turningsvast Arctic natural gas resources into a commercialventure that could eventually carry 1.9 billioncubic feet per day to Canadian and U.S. markets.

Before 2006 is over it should be clear whetherthe Mackenzie Gas Project is on track for comple-tion in 2011, or whether Canada’s northern petro-leum riches will be shouldered aside by the much

larger Alaska Highway gasline.By the middle of February, parallel hearings are

due to start rolling across the Northwest Territoriesand extending into Alberta.

NEB begins Jan. 25The National Energy Board has set Jan. 25 —

Sierra Club directors Elizabeth May andCarl Pope have made a case to

ExxonMobil (parent of Imperial Oil, theMackenzie’s lead partner) to abandon

their Canadian plans “in favor ofadvancing” Alaska.

R

see HEARINGS page 16

New contract sparks debateCook Inlet explorers, state, individuals challenge Marathon-Enstar gas deal

By ALAN BAILEYPetroleum News

sk residents of Anchorage,Alaska, about natural gas andmost will probably cite esca-lating price levels as a prime

concern. But with gas suppliesfrom the neighboring Cook Inletbasin set to decline, people are alsobecoming increasingly aware ofthe possibility of gas shortages.

Ensuring continuity of future gas supplies hasbecome a major focus for Enstar Natural Gas Co.,the main gas utility serving the Anchorage area. Andin November 2005 Enstar agreed to a new gas sup-ply contract with Marathon Oil Corp. That contractwould assure sufficient gas to meet Enstar’s needsthrough at least 2016, by which time there may be a

spur pipeline delivering North Slope gas to theAnchorage area.

“The good news is that we’ve finally been able tonegotiate supply for that period of serious uncer-tainty between now and … when we might seeNorth Slope gas,” Tony Izzo, president and CEO of

Old, new bills on agendaHouse Ways to hear gas, oil tax bills; another proposes uniform permit app

By KRISTEN NELSONPetroleum News

he 24th Alaska Legislaturereconvenes for its secondsession Jan. 9, and while itis waiting, along with the

rest of the state, for a gaspipeline fiscal contract toreview, it has other oil and gasissues on its agenda.

House Ways and Means has already scheduledhearings on two oil and gas tax measures introducedlast session: House Bill 63, by Rep. Les Gara, D-Anchorage, an oil severance tax bill and HB 223, anatural gas pipeline incentive/gas tax, by Rep. Eric

Croft, D-Anchorage, billsdesigned to garner more rev-enue for the state under highoil prices and to tax gas if a gasline is not built.

Other legislators have pre-filed matching House-Senatebills which address oil and gaspermitting issues.

Rep. Berta Gardner andSen. Gretchen Guess, both

Anchorage Democrats, pre-filed bills requiring adop-tion of a “unified permit application form by the nat-ural resource agencies; and providing for online per-

A

Storm Cat mobilizes Kuukpikrig for Mat-Su gas drilling

Storm Cat Energy Corp. has contracted Kuukpik DrillingLLC to mobilize a rig to drill a well near Big Lake in Alaska’sMatanuska-Susitna Borough, north of Anchorage, ScottZimmerman, president and CEO of Storm Cat told PetroleumNews on Jan. 4. Drill site construction will start some time nextweek, with a spud date in mid to late January — the spud datewill depend on Storm Cat obtaining permits that are currentlybeing processed, Zimmerman said.

Conventional natural gasIf all goes according to plan the Kuukpik No. 5 rig will drill

the well to a conventional gas prospect in the Tyonek formationat a depth of about 7,500 feet. The well will be on an AlaskaMental Health Trust lease. Zimmerman hopes to have results

Headed to Northern Dancer

The Kuukpik rig no. 5 that will drill the Storm Cat well

Shell game sets off rumorsSHARES OF SHELL CANADA hit record heights at the

end of 2005, fueled by rumors that Royal Dutch Shell mightbuy out the 22 percent it doesn’talready own.

Neither company would commenton market speculation, leaving analyststo conjecture on the validity of thechatter.

The consensus thinking points to anumber of options should the parentcompany attempt to absorb itsCanadian unit including a share-exchange offer worth about C$7.6 bil-lion, taking advantage of the recentunification of its previously dual corpo-rate structure.

Other possibilities include capital investment and externalacquisitions, using Royal Dutch Shell’s surplus cash.

see STORM CAT page 15

see INSIDER page 15

The skyline of Anchorage, Alaska

see CONTRACT page 14

T

see AGENDA page 15

Rep. Berta Gardner Sen. Gretchen Guess

STEV

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2 PETROLEUM NEWS • WEEK OF JANUARY 8, 2006

contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska

PIPELINES & DOWNSTREAM

NATURAL GAS

GOVERNMENT

INTERNATIONAL

4 Eminent domain issue draws six pre-files

Four bills in House, two in Senate; all restrict use of power; one bill also would extend it for developing O&G resources

9 Mounties ride intothick of election

Start criminal investigationinto allegations by left-wingersthat investors profited from insider information on income trust ruling

11 Ethics complaint dismissed against Alaska AG Marquez

Independent counsel said Alaskaattorney general does not ownshares in BP or ConocoPhillips, not a lead player in negotiations

8 Oil prices end 2005 above $61 a barrel

Oil prices up 40% from start of year, natural gas surged80%; U.S., Chinese demand expected to keep prices up, in $50 range

6 Quebec renews search for hydrocarbons

Talisman, Questerre to drill for gas this year; juniorspartner with provincial utility, hoping for first commercial oil find

12 Nova Scotia woes keep piling up

EnCana-Marauder wildcatunsuccessful, sidetrack well underway at Deep Panuke; moreexploration licenses abandoned; nowells scheduled for 2006;Marauder shares drop by 50%

6 Producer fades away in sour gas case

Compton Petroleum will continue to produce from twowells on outskirts of Calgary, Alberta board deniesrequest for extension of filing to August, Jan. 3 filing deadline passes

EXPLORATION & PRODUCTION4 Oil found at Big Foot in deepwater Gulf

7 North Slope output down 4 percent

FINANCE & ECONOMYON THE COVERHearings on grand scale

On brink of dual reg processes for Mac project; Arctic gas future on the line

New contract sparks debate

Cook Inlet explorers, state, individuals challenge Marathon-Enstar gas deal

Old, new bills on agenda

House Ways to hear gas, oil tax bills; another proposes uniform permit app

Storm Cat mobilizes Kuukpikrig for Mat-Su drilling

16 SIDEBAR: Key players in the Mac regulatory process

1 Shell game sets off rumors

15 Loeffler joins Jade North

15 AAEP to hear talk on FERC gas line review

11 Gas price drops amid Russia-Ukraine tift

12 Venezuela: Three firms owe $224M

5 New U.S. outlets for Canadian heavy crude

7 BLM OKs TAPS plans with requirements

OIL PATCH INSIDER

PETROLEUM NEWS • WEEK OF JANUARY 8, 2006 3

Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status

Alaska Rig StatusNorth Slope - Onshore

Doyon DrillingDreco 1250 UE 14 (SCR/TD) Milne Point H-pad MPC-28a BPSky Top Brewster NE-12 15 (SCR/TD) Kuparuk 1C-20 ConocoPhillipsDreco 1000 UE 16 (SCR) Workover well DS11-38a BPDreco D2000 UEBD 19 (SCR/TD) Alpine CD4-318 ConocoPhillipsOIME 2000 141 (SCR/TD) Kuparuk 1J-101 ConocoPhillipsTSM 7000 Arctic Fox #1 Rigging up on Hailstorm #1 Pioneer Natural Resources

Nabors Alaska DrillingTrans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay AvailableDreco 1000 UE 2-ES (SCR) Prudhoe Bay 01-08Ai BPMid-Continental U36A 3-S Kuparuk 1D-134 ConocoPhillipsOilwell 700 E 4-ES (SCR) WGI-08 BPDreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay V-46 BPDreco 1000 UE 9-ES (SCR/TD) L-123i BPOilwell 2000 Hercules 14-E (SCR) Staged at Cape Simpson FEXOilwell 2000 Hercules 16-E (SCR/TD) Stacked, Prudhoe Bay AvailableOilwell 2000 17-E (SCR/TD) Stacked, Point McIntyre AvailableEmsco Electro-hoist -2 18-E (SCR) Stacked, Deadhorse AvailableOIME 1000 19-E (SCR) Stacked, Deadhorse AvailableEmsco Electro-hoist Varco TDS3 22-E (SCR/TD) Stacked, Milne Point AvailableEmsco Electro-hoist 28-E (SCR) Stacked, Deadhorse AvailableOIME 2000 245-E Stacked, Kuparuk AvailableEmsco Electro-hoist Canrig 1050E 27-E (SCR-TD) Stacked on 12-acre pad Available

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) 1D-27, Prudhoe Bay BPSuperior 700 UE 2 (SCR/CTD) Well 3H-14 Kuparuk BPIdeco 900 3 (SCR/TD) Kuparuk, 2T-208 ConocoPhillips

North Slope - OffshoreNabors Alaska DrillingOilwell 2000 33-E NorthStar NS-10 BP

Cook Inlet Basin – OnshoreAurora Well ServiceFranks 300 Srs. Explorer III AWS 1 Stacked in Nikiski Available

Kuukpik 5 Mobilized for Northern Dancer #1 Storm Cat

Marathon Oil Co.Taylor Glacier 1 KBU 24-6 RD Marathon

Nabors Alaska DrillingNational 110 UE 160 (SCR) Stacked, Kenai AvailableContinental Emsco E3000 273 Stacked, Kenai SoldFranks 26 Stacked AvailableIDECO 2100 E 429E (SCR) Stacked, removed from Osprey platform AvailableRigmaster 850 129 Middle Lake Unit #1 Forest Oil

Cook Inlet Basin – Offshore

Unocal (Nabors Alaska Drilling labor contractor)Not Available

XTO EnergyNational 1320 A Rig move on platform A XTONational 110 C (TD) Idle XTO

Mackenzie Rig StatusCanadian Beaufort Sea

Seatankers (AKITA Equtak labor contract)SSDC CANMAR Island Rig #2 SDC Paktoa C-60 Devon ARL Corp.

Mackenzie Delta-OnshoreAKITA EqutakDreco 1250 UE 62 (SCR/TD) Stacked in Tuktoyaktuk, NT AvailableNational 370 64 On barges moving to Hay River & then Available

on trucks to Alberta.

Central Mackenzie ValleyAKITA EqutakRigmaster 850 40 Expects to move to Summit Creek K-44

on 1/10 Husky OilDreco 1250 UE 63 (SCR/TD) Moving to Stewart D-57 location. Est.

spud 1/19 Husky Oil

AKITA/SAHTUOilwell 500 51 Working in Alberta Apache

Yukon Territories Rig StatusYukon

AKITA/KaskaNational 80UE 58 Stacked in Fort Liard, NT. Move to Talisman Energy

Beaver River mid Jan.

Ensign Resources Svc. Grp.Jackknife Double 55 Racked in Ft. Nelson

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of January 4, 2006.

Active drilling companies only listed.

TD = rigs equipped with top drive units WO = workover operations CT = coiled tubing operation SCR = electric rig

This rig report was prepared by Alan Bailey

Baker Hughes North America rotary rig counts*Dec. 30 Dec. 22 Year Ago

US 1,471 1, 475 1,243Canada 364 532 346Gulf 75 75 100

Highest/LowestUS/Highest 4530 December 1981US/Lowest 488 April 1999Canada/Highest 558 January 2000Canada/Lowest 29 April 1992

*Issued by Baker Hughes since 1944

The Alaska - Mackenzie Rig Report is sponsored by:

JUD

Y P

ATR

ICK

4 PETROLEUM NEWS • WEEK OF JANUARY 8, 2006

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GULF OF MEXICOOil found at Big Foot in deepwater Gulf

Operator Chevron said Jan. 4 that 300 feet of net oil pay has been found at theGulf of Mexico deepwater Big Foot prospect in Walker Ridge block 29 some 225miles south of New Orleans.

The Big Foot No. 2 discovery well is in approximately 5,000 feet of water andwas drilled to a total depth of 25,127 feet, encountering as much as 300 feet ormore of net oil pay, Chevron said.

Drilling is under way at a sidetrack well and Chevron said further appraisaldrilling will be required to determine commercial potential of the discovery.

Chevron, which owns a 60 percent working interest in Big Foot, is the opera-tor; Anadarko Petroleum Corp. has 15 percent, Plains Exploration and ProductionCo. 12.5 percent and Shell 12.5 percent.

Big Foot follows Knotty HeadRay Wilcox, president of Chevron North American Exploration and

Production Co. called Big Foot the company’s “latest success in the deepwaterGulf of Mexico,” and said the discovery should “ultimately provide the countrywith much needed crude oil and natural gas.”

“Big Foot follows our earlier success at the Knotty Head discovery and is con-firmation of further potential of our exploration acreage,” said Paul Siegele, vicepresident of Chevron’s Gulf of Mexico deepwater business unit. Chevron is thelargest overall leaseholder in the Gulf of Mexico, the company said.

Bob Daniels, Anadarko senior vice president, exploration and production, saidthe Big Foot discovery, following the December announcement of the KnottyHead discovery (see story in Dec. 25, 2005, issue of Petroleum News), “furthervalidates the extensive middle-to-lower Miocene play we are aggressively pursu-ing within the foldbelt area.” He said that including Anadarko’s wholly ownedGenghis Khan discovery, the company was “successful in three out of four fold-belt exploration wells during 2005.” Daniels said Anadarko expects to participatein five delineation and exploration wells in the first quarter of 2006. “The deep-water Gulf of Mexico will be a major piece of our overall growth plan in the com-ing years,” he said.

—PETROLEUM NEWS

● A L A S K A

Eminent domain issuedraws six pre-filesFour bills in House, two in Senate; all restrict use of power;one bill also would extend it for developing O&G resources

By KRISTEN NELSONPetroleum News

ills pre-filed for the second session ofthe 24th Alaska Legislature includesix prohibiting exercise of eminentdomain for economic

development. Eminent domain isthe power to take private propertyfor public use by governmentwith just compensation.

Four of the eminent domainbills are in the House and two arein the Senate.

One of the bills, however,would make a specific exceptionfor development of the state’s oiland gas resources.

Current state law provides thatright of eminent domain may beexercised for public uses includ-ing uses authorized by the U.S.government, public buildings andgrounds for state use and otherpublic uses authorized by theLegislature, public buildings andgrounds for the use of organizedor unorganized boroughs, cities,towns, villages, school districts or othermunicipal divisions. Eminent domain mayalso be exercised for canals, aqueducts,flumes, ditches or pipes conducting water,heat or gas for the use of local inhabitants,for raising the banks of streams, removing

obstructions and widening, deepening orstraightening channels, and for roads,streets and alleys.

Eminent domain may be exercised forfacilities such as wharves, docks, piers, fer-ries, bridges, private roads, railroads, canals

and pipes for public transporta-tion or for supplying mines andfarming neighborhoods withwater, draining and reclaimingland, for floating logs and lumberon non-navigable streams and forreservoirs to collect and storewater.

There is an extensive list ofmine-related uses of eminentdomain, which can also be exer-cised for private roads leading tohighways, for telephone and tele-graph lines, sewerage, tramwaylines, electric power lines and for“location of pipelines for gather-ing, transmitting, transporting,storing, or delivering natural orartificial gas or oil or any liquidor gaseous hydrocarbons, includ-ing, but not limited to, pumpingstations, terminals, storage tanks,

or reservoirs, and related installations.”

Economic development prohibitedThe bills pre-filed for this session would

B

see DOMAIN page 5

HB 319, by Rep. EricCroft, D-Anchorage,while it would pro-hibit “the exerciseof eminent domainto acquire propertyfor transfer to a pri-vate person” wouldspecifically author-ize “the exercise ofthe power of emi-nent domain for thepurpose of develop-ing the state’s oiland gas resources.”

PETROLEUM NEWS • WEEK OF JANUARY 8, 2006 5

NORTH AMERICANew U.S. outlets for Canadian heavy crude

Aside from the welter of major new crude pipeline projects out of Alberta, smallergains are under way in the United States, with new pipeline and refinery projects beingannounced Jan. 3.

Minnesota Pipe Line, operated by Koch, has launched plans to absorb moreCanadian crude at the Minneapolis and St. Paul refineries, while a Kansas refinery isboosting capacity to process Canadian heavy crudes.

Minnesota Pipe Line said it is seeking regulatory approval to spend $300 millionbuilding 300 miles of new 24-inch diameter line from Clearbrook, Minn., where ittakes crude off the Enbridge network, to the St. Paul area.

The initial expansion, due for completion by early 2008, will add 160,000 barrelsper day of capacity to the Minnesota system, which is currently running at its 300,000bpd capacity.

But the expansion project is being designed to eventually handle 350,000 bpd.Minnesota project manager Larry Van Horn said the undertaking will “provide

another outlet for Canadian producers to get their barrels to growing markets,” whileproviding an option to transport condensate to Canada’s heavy crude producers at somelater date.

The refineries are Flint Hill’s 280,000 bpd Pipe Bend facility and Marathon Oil’s70,000 bpd plant at St. Paul.

Meanwhile, Coffeyville Resources is spending $92 million to raise capacity at itsKansas refinery by 15 percent to 115,000 bpd by year’s end.

The additions will result in more heavy crudes run through the plant, which is dueto process its first barrel of Canadian crude in March.

Until now the refinery has processed light sweet grades gathered from Kansas andOklahoma and some crudes from Latin America.

—GARY PARK

all prohibit use of eminent domain for “eco-nomic development,” an issue of concernsince private property in the Lower 48 hasbeen condemned to allow private develop-ment which benefits the tax rolls of the enti-ty condemning the property.

House Bill 317, by Rep. Bob Lynn, R-Anchorage, would prohibit “the exerciseof eminent domain by the state and by itshome rule and general law municipalitiesfor the purpose of economic develop-ment” and would also repeal “the authori-ty of the Alaska Housing FinanceCorporation under the Slum Clearanceand Redevelopment Act to exercise thepower of eminent domain to acquire realproperty.”

Lynn’s bill provides that “eminentdomain may not be exercised for the pur-pose of promoting economic developmentor to acquire land as part of an economicdevelopment project.” Economic develop-ment is defined as “an activity intendedprimarily to increase a municipality’s taxrevenue, expand a municipality’s propertytax base, create new jobs or retain existingjobs in a municipality, or improve theoverall economic vitality of a municipali-ty.”

One proposal excludes parksHB 318, by Rep. Lesil McGuire, R-

Anchorage, and co-sponsored by Reps.Mike Hawker, R-Anchorage, Bill Stoltze,R-Chugiak/MatSu, Carl Gatto, R-Palmer,Peggy Wilson, R-Wrangell, Vic Kohring,R-Wasilla, Gabrielle LeDoux, R-Kodiak,Nancy Dahlstrom, R-Anchorage andMike Kelly, R-Fairbanks, broadens therestriction by specifying that “the right ofeminent domain may not be exercised forthe purpose of promoting economicdevelopment or to acquire land as part of

an economic development project,” butalso says that if property is the “primaryresidence of the owner of the property, theright of eminent domain may not be exer-cised for the purpose of developing arecreational facility or project, including apark, natural resource use area, trail orpedestrian pathway, greenbelt, access to awilderness area, amusement park, smallboat facility, personal use fishery, sportsfacility, playground, or infrastructure orother facility related to or in support of anindoor or outdoor recreational facility orproject.”

HB 337, by Rep. Jim Holm, R-Fairbanks, specifies that the right of emi-nent domain may not be exercised toacquire land for the purpose of “transfer-ring the land to a private landowner; ...increasing property tax income or otherrevenue to the state or a municipality; ...creating jobs; or ... creating or expandingeconomic development.”

Senate Bill 221, by Sen. RalphSeekins, R-Fairbanks, is the Senate ver-sion of HB 337.

SB 205, by Sen. Con Bunde, R-Anchorage, specifies that “the right ofeminent domain may not be exercised forthe purpose of promoting economicdevelopment or to acquire land as part ofan economic development project.”

Croft proposes use for oil and gas HB 319, by Rep. Eric Croft, D-

Anchorage, while it would prohibit “theexercise of eminent domain to acquireproperty for transfer to a private person”would specifically authorize “the exerciseof the power of eminent domain for thepurpose of developing the state’s oil andgas resources.”

Croft’s bill proposes that gas and oil beadded to existing rights for entry “and theright to take from the earth, gravel, stones,trees and timber as may be necessary for apublic use.” ●

continued from page 4

DOMAIN

By GARY PARKFor Petroleum News

t is back to square one in a test caseinvolving trillions of cubic feet ofAlberta’s gas future.

A showdown between gas producerCompton Petroleum and a formidable arrayof local government, health, environmentaland community organizations — alreadythe most protracted well license hearing inthe province’s history — may have to startfrom scratch if Compton hopes to developsour gas on Calgary’s outskirts.

The company passed up the chance tofile an emergency response plan with theAlberta Energy and Utilities Board by a

Jan. 3 deadline. That, in turn, could scuttle any hopes by

other producers to start developing sour gasresources close to major population cen-ters.

In a surprise pre-Christmas ruling, theboard denied Compton’s request to extendto Aug. 1 the deadline for submitting itsresponse plan tied to plans for drilling foursour gas wells southeast of the Calgary citylimits.

However, Compton said it will continueto produce gas from two previouslyapproved wells in the area.

Future of 40% of remaining gas in doubt

What is now in some doubt is the futureof 40 percent of Alberta’s remaining gasreserves, as operators and rapidly growingcities reach a crossroads.

The energy board has estimated that6,000 “significant” sour gas wells are pro-ducing close to settlements in Alberta,including 105 in the vicinity of Calgary,pumping C$1.5 billion a year into govern-ment revenues and accounting for 37,000jobs.

The cost has been equally high, with 37industry workers killed by exposure to sourgas over the past 30 years.

But, other than a 68-day blow out in1982 that killed two workers and spread arotten-egg smell over a wide swath ofAlberta, sour gas has been slow to registeron the minds of most Albertans until more

recent years.

Plans unveiled in 2001That changed in 2001 when Compton

unveiled plans to drill wells near Calgary totap a reservoir of 68 billion cubic feet, witha hydrogen sulfide content of 35.6 percentthat could affect 250,000 residents — 25percent of Calgary’s population — in theevent of a blowout or leak.

Community fears dominated a 30-dayboard hearing that culminated June 22when the regulator approved four ofCompton’s proposed six wells, but under-scored its own concerns by requiringCompton to develop an improved emer-gency response plan after rejecting the ini-tial plan as inadequate.

The City of Calgary and the CalgaryHealth Region were in the forefront ofthose objecting to Compton’s wells.

They have appealed the board’s deci-sion and declined to cooperate withCompton in developing a response plan.

Board: Compton didn’t complete all tasks

But the board said Compton had failedto demonstrate that it had completed all ofthe tasks that didn’t require cooperationwith other organizations and had failed todemonstrate that it was prevented frommeeting the Jan. 3 deadline as a result ofcircumstances beyond its control.

Missing the deadline has been deemedby the board as an abandonment of theapplications and will result in the file beingclosed.

That is a serious blow to industry pro-ponents such as the Canadian Associationof Petroleum Producers who argue that theexpertise has been developed to safely drillfor and develop sour gas and EnergyMinister Greg Melchin, who argues thatdriving a car is a “far greater hazard” thandeveloping sour gas.

With the board taking a hard line andcommunity opposition at such a high level,it is expected that other companies hopingto follow a successful Compton applicationand drill close to Calgary will quietly fadefrom the scene. ●

By GARY PARKFor Petroleum News

rom shaky beginnings, Quebec is stag-ing a renewed push to join Canada’shydrocarbon producing provinces.

Talisman Energy has linked upwith Calgary-based junior QuesterreEnergy to drill a gas well this year and twoother juniors — partners with Hydro-Quebec, the provincially owned utility giant— have raised hopes of Quebec’s first com-mercial oil find.

Talisman and Questerre plan to drill theirwell in the St. Lawrence Lowlands betweenMontreal and Quebec City, targeting astructure that is an extension of Talisman’shighly successful Trenton Black River playin the U.S. Appalachian region where thebig Canadian independent is investingheavily and producing about 115 millioncubic feet per day.

Other targets identified by the partner-ship are a deeper sandstone structure and atight gas play.

Each holds the prospect of yielding gasin the billions of cubic feet, supported byQuebec government fiscal terms thatQuesterre Chief Executive Officer MichaelBinnion rates as some of the best anywhere.

Talisman, which could spend up to C$6million in Quebec this year, has a farm-inarrangement with Questerre to pay for thecost of drilling up to four wells to earn aninterest in Questerre’s land holdings.

Two wells with potentialHydro-Quebec was an early partner with

Questerre before dropping out, but is part-nered with Junex and Gestion BernardLemaire in drilling three wells on theGaspésie Peninsula.

Of the three wells on the Galt block, twohave shown some potential, according to

Jean-Sebastien Marcil, exploration chief forJunex. They were drilled to depths of 7,700feet and 8,850 feet and indicated the pres-ence of oil, gas and condensate without anywater from depths of 2,600-9,800 feet.

Initial production tests in fall 2004 yield-ed about 185 barrels of clean light oil fromone well, prompting the partners to under-take a “stimulation” job at a depth of 7,200feet.

Depending on results of the extendedproduction test, Junex hopes to raise asmuch as C$10 million to support thedrilling of at least two more wells, a com-pany spokesman said.

Junex will also continue work on aprospect west of Montreal and is preparingto drill three to six new shallow wells inpartnership with Petrolia.

Exploration in the Gaspésie Peninsulastarted over a century ago with the drillingof 100 shallow wells along oil seepage

areas, while companies such as ShellCanada and Husky Energy explored forhydrocarbons 50 years ago. Two commer-cial gas finds in the 1970s have since beenproduced.

Junex has spent the last 10 years work-ing in the Gaspésie Peninsula, starting withthe development of an oil well drilled inthe 1980s and, in partnership with Petrolia,has accumulated 3.5 million acres ofexploration land, identifying prospectivezones that the company says are “consid-ered favorable for hydrocarbon discovery.”

As with major oil and gas producingareas, the latest hunt in Quebec is buoyedby advances in exploration technology.

Binnion is emphatic that there is gas tobe found, noting that 90 percent of wells inQuebec have encountered gas, but thechallenge is to find a pool that is bigenough to support a commercial undertak-ing. ●

6 PETROLEUM NEWS • WEEK OF JANUARY 8, 2006

● Q U E B E C

Quebec renews search for hydrocarbonsTalisman, Questerre to drill for gas this year; juniors partner with provincial utility, hoping for first commercial oil find

F

● C A L G A R Y

Producer fades away in sour gas caseCompton Petroleum will continue to produce from two wells on outskirts of Calgary, Albertaboard denies request for extension of filing to August, January filing deadline passes

I

PETROLEUM NEWS • WEEK OF JANUARY 8, 2006 7

● A L A S K A

North Slope outputdown 4 percent

By KRISTEN NELSONPetroleum News

laska North Slope productiondropped 3.6 percent in December,averaging 859,838 barrels per daycompared to 892,192 bpd in

November, a 12.4 percent drop fromDecember 2004, when North Slope produc-tion averaged 981,072 bpd.

With the exception of Milne Point, allNorth Slope fields declinedin production fromNovember to December.

The Alaska Departmentof Revenue estimated ANSproduction for the current2006 fiscal year (July 2005through June 2006) at865,000 bpd, compared to917,000 bpd for FY ’05.

Prudhoe Bay had thelargest per-barrel drop(23,428 bpd) and the sec-ond-highest percentagedrop, 5.5 percent, averaging400,965 bpd in Decembercompared to 424,393 bpd inNovember. BP Exploration(Alaska)-operated Prudhoeincludes the westernPrudhoe satellites: MidnightSun, Aurora, Polaris,Borealis and Orion.

The highest percentagedrop, 8.33 percent, was atBP’s Northstar field, whichaveraged 54,990 bpd inDecember down from59,984 bpd in November.Revenue said the field had compressorproblems Dec. 2-4 which appeared to beresolved by Dec. 5. Northstar production,which began the month at 60,740 barrels,dropped to 22,873 barrels Dec. 2, and onlyreached the 60,000 barrel level again Dec.6; production dropped into the 40,000 bpdrange Dec. 25-26, recovering into the56,000-57,000 bpd range at the end of themonth.

Milne only field with increaseProduction from BP-operated Lisburne

(which includes Point McIntyre andNiakuk) averaged 38,894 bpd in December,down 4.7 percent from a November average

of 40,799 bpd. BP-operated Endicott averaged 21,072

bpd, down 2.8 percent from a Novemberaverage of 21,673 bpd.

The ConocoPhillips Alaska-operatedKuparuk River field (including productionfrom West Sak, Tabasco, Tarn, Meltwaterand Palm) averaged 169,348 bpd inDecember, down 1.5 percent from aNovember average of 171,998 bpd.

Alpine, also operated by ConocoPhillips

Alaska, averaged 129,910 bpd down 0.5percent from a November average of130,597 bpd.

BP’s Milne Point field was the only onewith a month-to-month increase in produc-tion, averaging 44,659 bpd, up 4.8 percentfrom a November average of 42,748 bpd.

The temperature at Pump Station No. 1on the North Slope averaged minus 2.5degrees Fahrenheit in December, up from aNovember average of minus 9.6 degrees F.The three-year December average is minus3.9 degrees F.

Cook Inlet production averaged 18,893bpd in December, up 0.6 percent from aNovember average of 18,790 bpd. ●

Prudhoe Bay had the largest per-barrel drop (23,428 bpd) and thesecond-highest percentage drop, 5.5 percent, averaging 400,965bpd in December compared to 424,393 bpd in November.

A

ALASKABLM OKs TAPS plans with requirements

The Joint Pipeline Office said Jan. 4 that the Bureau of Land Management has givenits annual approval for the trans-Alaska pipeline system oil spill contingency plan, butwith approval requirements.

Alyeska Pipeline Service Co., the trans-Alaska oil pipeline operator, was told to pre-pare a summary report upon completion of improvements at the Gulkana and Copperrivers, and to work through the response planning group (Alyeska and agency repre-sentatives) to develop a maintenance program addressing periodic vegetation clearingat culverts. Alyeska is also to develop and adopt a method for documenting hands-ontraining through the response planning group, establish minimum training requirementsand standardize duty rosters by June 30.

Alyeska is also required to develop and conduct oil spill exercises using terroristattack scenarios along the pipeline right of way or at the pump stations, involvingappropriate security agencies.

—PETROLEUM NEWS

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By BRAD FOSSAssociated Press Business Writer

il futures settled above $61 a barrelDec. 30 and finished 40 percenthigher than they started in 2005,capping a tough year for energy

consumers but a great one for the petrole-um industry as prices soared amid strongdemand and tight supplies.

For similar reasons, there was an evensharper advance in 2005 in the price ofnatural gas, which surged more than 80percent, making it extra expensive to pro-duce electricity, manufacture goods andheat homes.

Many analysts believe the averageprice of oil will be below $60 in 2006,though not by much as U.S. and Chineseeconomic growth continues and hawkishmembers of OPEC, such as Venezuelaand Iran, express growing interest in aproduction cut as early as the first quarter.

“Because of China, oil is never goingto go to the $18 to $22 level again in ourlifetime,” said Mike Fitzpatrick, a brokerat Fimat USA in New York. “But it cer-tainly doesn’t have to be $60.”

Fitzpatrick believes average oil priceswill be closer to $50 a barrel in 2006, anoutlook predicated on a slowdown in eco-nomic growth in the second half of theyear — because of high energy prices.“At some point, this has to have a delete-rious economic effect,” said Fitzpatrick,whose price outlook is more bearish thanmany of his peers.

$50 would be welcome newsWhile unthinkable just a few years

ago, a price near $50 a barrel would actu-ally be welcome news to energy-intensiveindustries such as airlines and truckingcompanies, who have retooled their oper-ations to use fuel more efficiently.

There are signs that some homeownersand motorists are also making smallchanges to keep their energy consump-tion in check, though analysts saydemand is still on the rise and that thetight supply of refining capacity in theUnited States is likely to boost the coun-try’s dependence on imports and keeppump prices high.

Average retail gasoline prices in the

United States surged to record territoryabove $3 a gallon after HurricaneKatrina, which knocked out refineriesand caused power outages that disabledpipelines that carry motor fuel from theGulf Coast to the Northeast and Midwest.Now, the average retail price of gasolinenationwide is $2.19 a gallon, or 41 centshigher than a year ago.

Little excess capacity One thing that all oil analysts agree on

is that the world’s largest petroleum pro-ducers are pumping almost as much asthey can, with little excess productioncapacity available in the event of a pro-longed supply disruption. The mere threatof lost output, whether because of geopo-litical strife or a natural disaster, will beenough to keep the market on edge in2006.

“It won’t take much to up the priceagain next year,” said London-based oilanalyst John Hall of John HallAssociates.

“My guess is that OPEC is quote com-mitted to holding up the price” at presentlevels, Hall said.

Hall also focused on Iraq, Iran andNigeria as potential problem countries,saying output snags and increasing polit-ical tensions could drive prices upward.

We’re in a post-Christmas lull, but“things will start to warm up when OPECministers start talking about what to do,”ahead of their January meeting, Hall said.Even now, “they’re all saying the samething — ‘we’re going to cut.’”

On Dec. 30, light sweet crude for

February delivery dropped 46 cents to$59.83 a barrel on the New YorkMercantile Exchange by midday inEurope, reversing much of its 50-centsurge the previous day.

Traders focused on U.S. weatherWith the Northern Hemisphere winter

only a week old, traders remain focusedon the weather in the United States, theworld’s largest energy market.

For that reason, natural gas, whichbriefly topped $15 per 1,000 cubic feetearlier in December, has been under pres-sure lately amid forecasts of mild weath-er in much of the United States.

On Dec. 30, natural gas futures inched0.2 cent higher to settle at $11.225, up 83percent on the year. On Dec. 29, theEnergy Department said domestic storageof natural gas stood at 2.64 trillion cubicfeet on Dec. 23. That is 8 percent belowyear-ago levels and 1 percent above thefive-year average for this time of year.

Heating oil dropped marginally to$1.6925 per gallon, while gasolinefutures slipped to $1.6403 a gallon.

On the ICE Futures exchange inLondon, Brent crude eased 40 cents, to$57.67 a barrel.

The price of Nymex crude is about 14percent below its Aug. 30 high of $70.85.Oil prices remained above $60 a barrelfor months after Katrina disrupted Gulfof Mexico oil and natural-gas output.About one-quarter of the region’s dailyoil production, and one-fifth of its naturalgas production, remains offline, becauseof damage to offshore platforms, under-water pipelines and onshore processingplants. ●

8 PETROLEUM NEWS • WEEK OF JANUARY 8, 2006

● N E W Y O R K

Oil prices end 2005 above $61 a barrelOil prices up 40% from start of year, natural gas surged 80%; U.S., Chinese demand expected to keep prices up, in $50 range

O

By GARY PARKFor Petroleum News

n its desperate struggle to retain powerin Canada, the Liberal party govern-ment of Prime Minister Paul Martinhas been dealt what many observers

think could be a knock-out blow.The Royal Canadian Mounted Police

announced Dec. 28 it has started a criminalinvestigation into whether anyone in gov-ernment leaked advance notice of FinanceMinister Ralph Goodale’s decision on thetaxation of income trusts before the offi-cial announcement on Nov. 23.

In the hours before Goodale removedthe threat of a tax on the trusts, whiledeciding to enact a politically popular cutin corporate dividend taxes to reduce theadvantage held by trusts in the market, thevalue of trusts and related stocks —espe-cially those in the energy sector — rosesharply.

Although it is not clear whether theheavy trading was anything more thaninformed guesswork by investors, theMounties said they intended to probe anallegation by the left-wing NewDemocratic Party “regarding a possiblebreach of security or illegal transfer ofinformation.”

The investigation will involve a specialunit of Mounties and securities regulatorswhich was created in 2003 to concentrateon capital market fraud.

But the national police force empha-sized it had seen no evidence of “wrong-doing or illegal activity on the part of any-one associated with this investigation,”including Goodale.

What is unusual is for such a high-pro-file, politically charged investigation to bestarted in the midst of a federal electioncampaign, leading to a vote on Jan. 23,while early polls showed the Liberals andConservatives in a virtual tie for the firsttime in the campaign.

Political clamor followsIt set off an immediate clamor by the

New Democratic, Conservative and BlocQuebecois parties for Goodale’s resigna-tion.

New Democratic finance spokesmanJudy Wasylycia-Leis said that even thoughthere was no indication Goodale was per-sonally involved in the alleged leak asminister he was responsible for the actionsof his staff and the civil servants in hisdepartment and should resign until thematter was resolved.

Conservative finance spokesmanMonte Solberg said the confirmation of apolicy investigation “highlights that theMartin government continues to operateunder an ethical cloud.”

Goodale said he was “absolutely confi-dent about my conduct in this matter and Ido not see any basis on which to resign.”

He got the unreserved backing ofMartin, who said Goodale is a “person ofthe highest integrity and he will not bestepping down.”

Editorial opinions on most of Canada’slargest newspapers agreed there was no

reason for Goodaleto quit his cabinetpost.

However, Martinconfirmed that heand some membersof his staff wereaware of Goodale’sincome trust decisionin advance.

“I knew and I’mone of them,” Martinsaid. “The fact is the people who would beon a need-to-know basis would have thatkind of information.”

Columnist: investigation unprecedentedAlthough the trust probe could last well

beyond the election date, it provides fur-ther ammunition for the opposition partiesin their attack on scandals and corruptionthat have undermined the Liberals.

John Ibbitson, a columnist in the Globeand Mail, suggested the criminal investi-gation “may have cost the Liberals thiselection.”

He said the investigation is stunningand unprecedented.

“In the past police forces have deliber-ately delayed announcing criminal investi-gations or the laying of charges duringelection campaigns, for fear of influencingthe outcome of those campaigns,” Ibbitsonwrote.

Tom Caldwell, chairman of CaldwellSecurities, was among those who doubtedany criminal impropriety will be uncov-

ered.“My gut feeling is

that by the time thesmoke clears and alot of money is wast-ed, I don’t thinkyou’re going to findany clear villains.”

Trust under furtherscrutiny

Aside from the political fallout, thetrusts — which carry a combined marketvalue of C$170 billion — have comeunder further scrutiny by the C.D. HoweInstitute, a national, independent researchorganization.

Jack Mintz, president of the think-tank,said more reforms are needed over andabove those announced by Goodale toreduce the market distortions created bythe investment vehicles.

He said the tax regime still encouragestrusts to pay excessive cash distributions toinvestors because trusts that retain taxableprofits are subject to heavy taxation.

An institute brief also cautioned that thedividend tax decrease does not affect for-eign shareholders, who pay little or no taxon investment income earned in Canada.

Non-resident investors, as well as pen-sion funds and retirement savings plans“prefer companies to convert businessassets into income trusts since they canavoid paying corporate taxes at a 35 per-cent rate,” Mintz said.

To help remove the tax discrepanciesbetween trusts and corporations, Mintzsuggested:

• Making the dividend tax creditrefundable to owners of pension andretirement savings plans so they would beindifferent between corporation and trustassets.

• Levying a corporate distribution taxto ensure that the refundable dividend taxis covered by corporate tax payments.

• Increasing the level of tax on non-residents receiving income trust distribu-tions so that they pay a similar tax on cor-porate dividends and income trust distri-butions. ●

PETROLEUM NEWS • WEEK OF JANUARY 8, 2006 9

● C A N A D A

Mounties ride into thick of election Start criminal investigation into allegations by left-wingers that investors profited from insider information on income trust ruling

IPrime Minister Paul Martin

Finance MinisterRalph Goodale

But the national police forceemphasized it had seen no

evidence of “wrongdoing or illegalactivity on the part of anyone

associated with this investigation,”including Goodale.

10 PETROLEUM NEWS • WEEK OF JANUARY 8, 2006

PETROLEUM NEWS • WEEK OF JANUARY 8, 2006 11

LONDONGas price drops amid Russia-Ukraine tift

Natural-gas prices fell Jan. 3 in electronic European trading as traders seem-ingly brushed off a pricing dispute between Russia and Ukraine that had threat-ened European gas supplies.

Natural gas prices fell 42.5 cents to $10.80 per 1,000 cubic feet in electronictrading on the New York Mercantile Exchange by morning in Europe.

One analyst said Russian state-controlled OAO Gazprom’s efforts to restoregas flow had helped ease upward pressure on prices.

“The price that Gazprom wants is more or less the price today, it’s just that allthe former Soviet surrogate states have been receiving reduced prices over theyears,” said Victor Shum, a Singapore-based analyst at energy consultants Purvin& Gertz. “So that’s why in the interim, you don’t see too much price movement.”

Light, sweet crude oil for February delivery was up 10 cents to $61.14 a bar-rel.

The price of Nymex crude is about 15 percent below its Aug. 30 high of$70.85. Oil prices remained above $60 a barrel for months after HurricaneKatrina disrupted Gulf of Mexico oil and gas output and dipped below $60recently amid mild winter weather in the United States.

Heating oil gained slightly to $1.7634 a gallon, while gasoline was at $1.7230a gallon.

Supplies back to EuropeEuropean buyers of Gazprom’s natural gas said Jan. 3 they had started receiv-

ing full supplies after the Russian monopoly increased shipments throughUkraine following a chorus of protest over its decision to cut off supplies to itsneighbor.

The resumption of normal flows was reported by Hungary, Austria andSlovakia, among others, and came as officials with Gazprom and its Ukrainiancounterpart, Naftogaz, were scheduled to resume talks over the pricing disputelater Jan. 3.

Gazprom halted deliveries to Ukraine Jan. 1 because Kiev had refused to meetits demands for a fourfold price increase. The state-controlled company said thenthat it would continue shipping full supplies to its European customers, about 80percent of which goes through pipelines crossing Ukraine.

About one-quarter of Europe’s gas comes from Russia, and the standoff raisedfears of serious gas shortages as Europe suffers through a particularly cold win-ter.

—THE ASSOCIATED PRESS

● A N C H O R A G E

Ethics complaintdismissed againstAlaska AG MarquezIndependent counsel said Alaska attorney general does not ownshares in BP or ConocoPhillips, not a lead player in negotiations

By MARK THIESSENAssociated Press Writer

he state Personnel Board on Dec. 30dismissed an ethics complaint whichrequested Alaska Attorney GeneralDavid Marquez, a former oil industry

lawyer and executive, recuse himself fromAlaska natural gas pipeline negotiations.

“I accepted this appointment as attorneygeneral with my pledge to serve to theutmost limits of my abilities the best inter-ests of this state,” Marquez said Dec. 30 ina prepared statement. “I will continue tohonor this commit-ment as long as Iserve in this capaci-ty.”

The complaintfiled Aug. 4 by for-mer U.S. AttorneyWev Shea allegedMarquez was in vio-lation of the AlaskaExecutive BranchEthics Act because his role in the pipelinenegotiations could alter the value of hisdeferred compensation plan from two oilscompanies, which Shea said was valued atmore than $1 million.

In dismissing the complaint, thePersonnel Board’s independent counselfound Marquez does not own shares ineither BP or ConocoPhillips, and he doesnot control the rate of return on either com-pensation plan. In fact, the ConocoPhillipspackage is held in mutual funds.

It also noted he worked for neither com-pany involved in the negotiations but fortheir predecessors, ARCO and PhillipsPetroleum Co.

Decision: Marquez not a lead playerThe decision also discounted the allega-

tion that Marquez is a lead player in thestate’s negotiations with BP, ConocoPhillipsand ExxonMobil to build a $20 billionpipeline to take natural gas from the NorthSlope, through Canada to markets in theMidwest.

Instead, the decision says Marquez onlyserves in an advisory role to the state nego-tiating team. It found he would have littleinfluence on any deal, whose final termsmust be approved by Gov. FrankMurkowski, the Commissioner of Revenueand the Alaska State Legislature.

“I respect the initial decision, and I have15 days to file a response, and I’ll file aresponse,” Shea said Dec. 30.

Shea has another complaint pendingagainst Marquez with the Personnel Board.In it, he claims Marquez broke attorney-client privileges by publicly commenting ona memo written to him by former NaturalResources Commissioner Tom Irwin.

Irwin was dismissed last fall after criti-cizing the state’s negotiations with oil pro-ducers on the natural gas pipeline in thememo, which Murkowski publicly released.

Marquez with ARCO for 21 yearsMarquez worked for ARCO Alaska Inc.

for about 21 years, first as an attorney andlater as a vice president and chief counsel.He also was Alyeska Pipeline Service Co.’sgeneral counsel from 1991-1993. He retiredfrom the industry in 2001 after a brief stintas vice president and chief counsel forPhillips Alaska Inc. He practiced law parttime until being hired by the Department ofLaw in 2003.

Marquez became the state’s attorneygeneral on March 31. He replaced GreggRenkes, who resigned in February amidconflict of interest allegations for his role ina trade agreement between Alaska andTaiwan.

Renkes helped shape the agreement toexport Beluga coal to Taiwan. The dealmentioned the use of coal-drying technolo-gy patented by Denver-based KFx Inc., acompany in which Renkes owned stock val-ued at more than $126,000 at its peak.

An outside investigator concluded theamount of stock Renkes owned was notenough to be considered legally significant.Renkes said he resigned to distance his fam-ily from continued personal attacks over thedeal. ●

T

DAVID MARQUEZ

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By GARY PARKFor Petroleum News

ny northeastern United States mar-kets counting on Nova Scotia naturalgas as a vital source of supportwould be well advised to check out

other prospects. A year marked by inactivity ended with

the only exploration well turning into a flopand another bunch of exploration permitsbeing abandoned.

What that amounts to over the near termis a brief turnaround in production from theSable field, with out-put rising close tocapacity of 530 mil-lion cubic feet perday, then recedingback to current vol-umes of 400 millioncubic feet per dayand less.

Those countingheavily on EnCana’sDeep Panuke discov-ery becoming the basin’s second commer-cial development were dealt a setback Dec.28 when the big independent and its part-ner, Marauder Resources East Coast,reported that Dominion J-14 failed toencounter a gas-bearing reservoir.

It was drilled to 12,100 feet at a cost ofC$30 million by the Rowan Gorilla VI rig.

Shares of Marauder, which has no otherassets, were immediately slashed by 50percent. The junior paid 40 percent of thecost to earn a 20 percent stake in the GrandPre block.

But Marauder Chief Executive OfficerRobert Shields did not concede final defeat.

“I am disappointed that the original tar-get didn’t show up, but this isn’t dead yet,”he said, referring to the sidetrack EnCanaand Marauder expect to complete by mid-January.

The sidetrack will follow the same ver-tical hole into the Abenaki reef formation todetermine whether gas is located near theDominion J-14 target.

“It’s a big reservoir (and) it’s very com-plex,” Shields said, noting that two of the

original four wells at Deep Panuke had tobe sidetracked and both were successful.

EnCana: ‘more work to do’A spokesman for EnCana said there is

“more work to do” before decisions can bemade on how the J-14 well will affect thefuture of Deep Panuke.

When EnCana stalled the regulatoryprocess on Deep Panuke three years ago itestimated reserves at 930 billion cubic feet— not enough in its view to make a C$1.3billion project economically viable.

It opted to continue exploring for addi-tional reserves, while negotiating morefavorable fiscal terms with the Nova Scotiagovernment and determining whether theremight be a way to share infrastructure withthe Sable field, which had watched itsreserve estimates tumble from 3.6 trillioncubic feet to 1.4 tcf.

The last two months have produced acouple of glimmers of good news for DeepPanuke, with Nova Scotia Premier JohnHamm reporting progress in the fiscalnegotiations and EnCana’s new ChiefExecutive Officer Randy Eresman tellingreporters before the J-14 results that he was“reasonably certain” the field would bedeveloped in the “reasonable future,” with-out tying that forecast to J-14.

Some analysts, who rate Deep Panuke’sprospects close to 1.5 tcf, suggested J-14could double those reserves, opening thedoor to a new producing basin.

“We have been continuously working totry to find a way to make (Deep Panuke)economically viable,” Eresman told theCalgary Herald. “Our chief concern is thedownside risk.

“On a high-side case, this is a tremen-dous asset, but on the downside, it would-n’t compete for capital. So we are very sen-sitive about making sure we do the right

kind of deal here.”Eresman reiterated the thoughts of his

predecessor Gwyn Morgan who had indi-cated EnCana might bring Deep Panuke toa certain point, then dilute its role.

“Certainly, we don’t want to be the oper-ator,” because EnCana does not have theinternal expertise to take on such a project,Eresman said.

Some assume the obvious buyer wouldbe ExxonMobil, which is operator of thenearby Sable field.

Exploration licenses lapseWhile Deep Panuke remains in doubt,

further clouds spread over Nova Scotiawhen holders of six exploration permitsallowed the licenses to lapse Dec. 31, wip-ing another C$156 million in work com-mitments off the books.

Since mid-2004 more than 30 permitscarrying more than C$500 million in workpledges have been abandoned, taking suchkey operators as ExxonMobil, ImperialOil, Shell Canada and Kerr-McGee withthem.

In addition, companies have invested inthe region of C$1 billion drilling a string ofdry holes over the past seven years.

That history is making it difficult forNova Scotia boosters to make their casethat the region is still an immature playand has logged only a fraction of the wellscompleted in the Gulf of Mexico and othermajor offshore basins.

But a spokesman for the Canada-NovaScotia Offshore Petroleum Board told theFinancial Post that, although no wells areplanned for 2006, Nova Scotia remains a“very frontier area.”

He said the regulator understands thereis the potential for 40 tcf, but hitting “theright spot” through exploratory drilling is acomplex process. ●

12 PETROLEUM NEWS • WEEK OF JANUARY 8, 2006

● N O V A S C O T I A

Nova Scotia woes keep piling upEnCana-Marauder wildcat unsuccessful, sidetrack well under way at Deep Panuke; moreexploration licenses abandoned; no wells scheduled for 2006; Marauder shares drop by 50%

A

EnCana’s new CEORandy Eresman

Those counting heavily on EnCana’s Deep Panuke discovery becomingthe basin’s second commercial development were dealt a setback Dec. 28

when the big independent and its partner, Marauder Resources EastCoast, reported that Dominion J-14 failed to encounter a gas-bearing

reservoir.

VENEZUELAVenezuela: Threefirms owe $224M

Venezuelan tax authorities have toldthree foreign oil firms they owe a totalof $223.7 million in back taxes.

Spain’s Repsol YPF SA was billed$113 million, while France’s Total SAwas charged $107.4 million, said taxagency official Diana Vargas. Japan’sTeikoku Oil owes $3.3 million.

The Venezuelan government hassought to claim a greater share of rev-enues from private oil companies amidhigh oil prices, including increasing taxcollection. As part of an industry-widereview, Venezuela has claimed it isowed much as $3 billion in unpaidtaxes from private oil firms, which itplans to collect by March 2006 at thelatest.

Vargas said four more companieswill receive tax bills in late January,including Chevron and BP.

—THE ASSOCIATED PRESS

PETROLEUM NEWS • WEEK OF JANUARY 8, 2006 13

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

ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARSBusiness Spotlight

AAce TransportAcuren USA (formerly Canspec Group). . . . . . . . . . . . . . . . . . 7AeromedAES Lynx EnterprisesAgriumAir Liquide. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Air Logistics of Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Alaska Airlines CargoAlaska Anvil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Alaska CoverallAlaska Dreams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Alaska Interstate ConstructionAlaska Marine LinesAlaska Railroad Corp.Alaska Rubber & SupplyAlaska TelecomAlaska Tent & TarpAlaska TextilesAlaska USA Mortgage Company. . . . . . . . . . . . . . . . . . . . . . 11Alaska West ExpressAlaska’s PeopleAlliance, The . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Alpine-MeadowAlyeska Prince HotelAmerican Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Arctic ControlsArctic FoundationsArctic Fox EnvironmentalArctic Slope Telephone Assoc. Co-opArctic StructuresArctic Wire Rope & SupplyASRC Energy Services

Engineering & TechnologyOperations & MaintenancePipeline Power & Communications

AutryRaynes Engineeringand Environmental Consultants

Avalon Development

B-FBadger ProductionsBaker HughesBroadway SignsBrooks Range SupplyBW TechnologiesCapital Office SystemsCarlile Transportation ServicesCarolina Mat CompanyChiulista Camp Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11CN AquatrainColvilleConocoPhillips Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Construction Machinery IndustrialCoremongers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Crowley AlaskaCruz ConstructionDowland - Bach Corp.Doyon DrillingDoyon LTDDoyon Universal ServicesDynamic Capital ManagementEngineered Fire and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . 4ENSR AlaskaEpoch Well ServicesESS/On-Site Camp ServicesESS Support Services WorldwideEvergreen Helicopters of AlaskaFairweather Companies, TheFlowline AlaskaFriends of Pets

G-MGene's ChryslerGreat Northern Engineering. . . . . . . . . . . . . . . . . . . . . . . . . . . 6Great NorthwestHanover CanadaHawk Construction ConsultantsH.C. Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Hilton AnchorageHoladay-ParksHotel Captain CookHunter 3-DIndustrial Project ServicesInspirationsJackovich Industrial & Construction Supply . . . . . . . . . . . . . . 5JEMS Real EstateJudy Patrick PhotographyKenai Aviation

Kenworth AlaskaKuukpik Arctic CateringKuukpik/VeritasKuukpik - LCMFLasser Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8LCMFLCMF - Barrow Village Response Team (VRT)Lounsbury & Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Lynden Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Lynden Air Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Lynden Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Lynden International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Lynden Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Lynden Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Mapmakers of AlaskaMarathon OilMarketing SolutionsMayflower CateringMI SwacoMichael Baker Jr.MWHMRO Sales

N-PNabors Alaska DrillingNANA/Colt EngineeringNANA Oilfield ServicesNatco CanadaNature Conservancy, TheNEI Fluid TechnologyNMS Employee Leasing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Nordic Calista . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9North Slope TelecomNorthern Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Northern Transportation Co.Offshore Divers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Oilfield ImprovementsOilfield TransportPacific Power ProductsPanalpinaPDC Harris GroupPeak Oilfield Service Co.PencoPerkins Coie. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Petroleum Equipment & ServicesPetrotechnical Resources of AlaskaPGS OnshorePipe Wranglers CanadaPrecision PowerPrudhoe Bay Shop & Storage. . . . . . . . . . . . . . . . . . . . . . . . . 16

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Robert Fairbanks, Sales & Rentals

By PAULA EASLEY

ConstructionMachineryIndustrial LLC

Construction Machinery IndustrialLLC maintains operations inAnchorage, Wasilla, Fairbanks, Juneauand Ketchikan to handle all productsthe company represents in sales,rentals and service. CMI is the “goto” place for Hitachi excavators,Volvo loaders, the full Ingersoll-Randproduct line, Genie manlifts, link-beltcranes, Gorman-Rupp pumps, excava-tors, haulers and more.

Lifelong Alaskan Robert Fairbankshas been in the heavy equipmentfield 21 years, six with CMI. He isactive in Associated GeneralContractors, the Anchorage PetroleumClub and the Alaska MinersAssociation. Working on his hotrod,attending hockey games and spend-ing time with the family at Big Lakeare his favorite activities. He andMary, his wife of 29 years, have twochildren, Chris and Emily, and agrandson.

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

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Enstar told an Anchorage Chamber ofCommerce audience on Nov. 14.

But in focusing on continuity of sup-plies has Enstar conceded future price lev-els that are too high? And will the newcontract stifle future gas exploration in theCook Inlet basin? These are a couple of thequestions that the State of Alaska, compa-nies linked to the Cook Inlet gas industryand private individuals have raised withthe Regulatory Commission of Alaskaprior to an RCA decision on whether toinvestigate the contract.

Guaranteed deliveryAt the core of the new contract are

guaranteed volumes of natural gas thatMarathon will supply to Enstar from 2009onwards from known Cook Inlet gasreserves that Marathon owns. The guaran-teed volumes increase until 2016 anddecline thereafter. Without additional gassources, volumes would decline to zero atsome time after 2018.

When added to Enstar’s other contract-ed supplies (primarily from Chevron andanother Marathon contract) Enstar shouldobtain sufficient gas to meet projecteddemand through 2016. Without the con-tract, Enstar could start to run short of gasas soon as 2009, Enstar has said.

And, according to Enstar’s contractapproval request to RCA, “Marathon wasthe only gas producer that offered to meetEnstar’s unmet requirements beginning in2009 and continuing for a reasonable peri-od.”

Under the contract, the price that Enstarwill pay for the gas will be based on a 12-month trailing average of gas prices at theHenry Hub gas market in the Lower 48,with discounts if that index price climbs

above $6 per thousand cubic feet. Theprice will have a floor of $4.25 per mcf anda cap of $15 per mcf (the Henry Hub pricewas about $13.5 at the end of December).There is an additional charge for peak gasvolumes supplied at volume rates in excessof contracted peak volumes.

Also under the terms of the contractMarathon will have an unlimited ability tomeet its supply commitments by buyingand reselling gas from third party produc-ers.

Rather than adding variable gaspipeline tariff rates to Enstar’s cost for thegas, the contract specifies a fixed trans-portation rate of 25 cents per mcf for allgas supplied.

Questions of priceMuch of the criticism of the contract

revolves around the price levels on whichMarathon and Enstar have agreed. And thestate attorney general has said that becauseEnstar passes the gas prices that it paysdirectly through to its customers, the utili-ty has little incentive to ensure low pricesin its gas supply contracts.

Questions by the attorney general haveparticularly focused on price indexing toHenry Hub price levels. Earlier Enstarcontracts with Unocal (now Chevron), in2001, and NorthStar, in 2004, already usethe Henry Hub price as an index, althoughboth of those contracts used a 36-monthtrailing average price rather than the 12-month trailing average of the new contract.

The linkage to Lower 48 prices resultsfrom a need to attract new investment intoCook Inlet gas exploration — there’s littleor no incentive for companies to explorefor gas in the Cook Inlet basin if thosesame companies can explore for gas athigher prices elsewhere in the UnitedStates (or overseas). And without newCook Inlet gas exploration, gas supplies inthe Anchorage area will surely run dry

before too long.

Earlier contracts specified explorationBut the earlier contracts with Enstar

were exploration contracts that incorporat-ed a need to find new gas reserves to satis-fy the supply agreements. The new con-tract only depends on known Marathon gasreserves; commitments in the contract donot depend on exploring for further gas.

“Most notable for the purposes of theCommission’s review of this MarathonGSA (gas supply agreement) is that boththe Unocal and NorthStar GSAs purportedto be ‘exploration’contracts and each com-pany relied on this characterization as ajustification to use HHI (Henry Hub) as apricing index,” the attorney general said inhis comments to RCA on the new contract.

Marathon has, however, commentedthat it has already “invested significantamounts of capital to prove up and devel-op gas reserves that can serve Enstar andother Cook Inlet markets” and “as a result,Marathon can now offer proven reserves toEnstar that will provide strong security ofsupply to Enstar and its customers.”

The attorney general and others havealso pointed out that Henry Hub priceshave been subject to recent spikes as aresult of events such as hurricane Katrina.Why should Alaska residents have to suf-fer from price shocks that result fromevents that don’t impact Alaska gas sup-plies, these people ask.

Giard dissented to 2004 orderAnd in a dissenting statement to the

2004 RCA order approving theNorthStar/Enstar contract RCACommissioner Kate Giard expressed aconcern that by linking Cook Inlet gasprices to Henry Hub “captive (gas)ratepayers are at the mercy of a spot mar-ket in the Lower 48 that bears no relationto gas market conditions in Alaska.”

The attorney general also criticized theuse of a 12-month trailing average price,rather than a 36-month trailing average:the 12-month average will increase pricevolatility and the possibility of rate shocks,the attorney general said. Marathon andEnstar have justified the use of a 12-monthmoving average on the grounds that it willprovide diversification from the price for-mula in the 2001 Unocal contract and thatit will buffer the Unocal price by “morequickly reflecting falling prices.”

And the attorney general has ques-tioned the use of a fixed transportation fee,saying that this fee is “arbitrary, potential-ly discriminatory and unsupported.”

Aurora Gas LLC, an active explorer inthe Cook Inlet basin and operator of fivegas fields on the west side of the Inlet, sup-ports gas price increases as necessaryincentives for new Cook Inlet basin explo-ration but has expressed concern about the

impact of the new contract on the taxes androyalties on production from itsMoquawkie field. Aurora sells gas fromMoquawkie at a lower price than that inthe Marathon-Enstar contract, while pro-duction taxes and royalties are calculatedfrom “prevailing value,” a weighted aver-age of prices paid by utilities in the region.

“The scenario creates a situation where-by the smallest company, with the highestdevelopment costs per unit, is receivingthe lowest net price for its gas,” ScottPfoff, president of Aurora Power said in aletter to RCA about the new contract.

Market accessAnd companies such as Aurora feel

particularly concerned about the way inwhich gas supply agreements such as thenew Marathon-Enstar contract can closethe gas market to new companies thatwant to explore the Cook Inlet basin.

“Having pounded the pavements indowntown Houston, downtown New Yorkand in Calgary in search of private equitycapital … we never had any problem sell-ing anybody on the technical merits oflooking for oil and gas in the Cook Inletbasin,” Pfoff said at the ResourceDevelopment Council annual conferencein mid-November. “… The problem camewhen I got up and tried to talk about themarket. There is no spot market up here —you don’t just find gas, hook it up to thenearest pipeline and start selling it. You’vegot to have contracts; you’ve got to have away to sell your gas.”

Enstar and Marathon have pointed outthat the new contract runs for a relativelyshort term compared with other Cook Inletcontracts. However, the new contractwould, together with existing contracts,account for gas sales to Enstar until atleast 2016.

So, Aurora and Trading Bay Oil andGas LLC, another Cook Inlet lease owner,have requested that RCA requires a set-aside of about 10 percent of purchased gasfor producers other than Marathon.

“If new companies fail to show up withnew supply, then the existing producercommunity can compete for the set asideportion of the utility’s requirements,”Pfoff said.

Marathon can purchase from othersThe attorney general and others have

also criticized another aspect of the con-tract that they think limits competition inthe Cook Inlet gas market: the contractallows Marathon an unlimited ability tomeet its supply commitments by purchas-ing gas from third party producers. Thatwould enable Marathon to resell the gas toEnstar at a profit, using the contract price.

“Under this GSA Marathon … could, ifapproved, enhance its windfall opportuni-

14 PETROLEUM NEWS • WEEK OF JANUARY 8, 2006

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CONTRACT

see CONTRACT page 16

PETROLEUM NEWS • WEEK OF JANUARY 8, 2006 15

But it is also expected to take severalmonths of legal work before the parentcompany makes a decision to avoid thefinancial, legal and regulatory pitfallsthat have plagued previous Shell buy-outs.

Bringing the two units togetherwould reduce the complexities of deci-sion-making, which were reportedly out-lined to senior managers by Linda Cook,chief executive officer of Shell Canadafor 12 months in 2003-2004 and nowShell’s global executive director for gasand power.

She apparently talked about the diffi-culties of dealing with minority share-holders and the seven independent direc-tors on Shell Canada’s 10-person board.

Giving the parent company 100 per-cent control could give a lift to futureprofits and a boost to the company’sreserves.

Shell Canada is in the front lines ofmost of Canada’s oil and gas frontierprojects.

It is 60 percent operator of the155,000 barrel per day Athabasca oilsands project which is chasing a goal of500,000 bpd; becoming a major playerin the deep gas plays of WesternCanada; one of four anchor gas ownersin the Mackenzie Gas Project; and apartner in Nova Scotia’s Sable gas field.

—GARY PARK

Loeffler joins Jade North

BOB LOEFFLER, formerly directorof the Division of Mining, Land andWater in the Alaska Department ofNatural Resources, has joined JadeNorth LLC, the firm said Jan. 3.

Jade North saidLoeffler will repre-sent clients withnatural resourceextraction andtransport issues andassist clients withland managementprojects and issueswith government,Native and otherprivate land owners.

Loeffler, who has spent some 25years working for the State of Alaska,was one of six Department of NaturalResources officials who resigned Oct.27 following the dismissal ofCommissioner Tom Irwin in a disputewithin the administration over how thegas pipeline fiscal contract negotiationswith the North Slope producers wereproceeding.

Jade North, an Anchorage-based firmfounded in 2000, provides consultingservices in the natural resource, AlaskaNative and government sectors.

—KRISTEN NELSON

AAEP to hear talk onFERC gas line review

AT THE NEXT Alaska Association ofEnvironmental Professionals’ brown baglunch meeting Joe Reinermann ofNatural Resource Group Inc. will talkabout the Federal Energy RegulatoryCommission review process for naturalgas pipelines.

The meeting will take place at 11:45a.m. on Wednesday Jan. 18 in the BPEnergy Center in Anchorage. ContactDenise Saigh at (907) 562-8738 formore information.

—PETROLEUM NEWS

from the well in late February or earlyMarch, following drilling, testing and eval-uation.

“Northern Dancer No. 1 is the wellname,” Zimmerman said. “… It’s close tothe Big Lake No. 1 well.”

Pan American Petroleum Corp. drilledthe (USA) Big Lake No. 1 well in 1968 to adepth of 6,026 feet at section 1, township 15north, range 4 west of the Seward meridian.The Alaska Oil and Gas Commissionrecords for that well do not appear to indi-cate any oil or gas shows, although at thattime Pan American would have beenexploring for oil.

Zimmerman said that Storm Cat’s wellwill be located about 6 miles from theEnstar gas pipeline that transports gas intothe Mat-Su Borough and Anchorage.

Alaska-based consultants Arlen Ehm,Corri Feigi and Mike Belowich helped

Storm Cat identify the prospect using 2Dseismic data, Zimmerman said.

Although the focus of the NorthernDancer No 1 well will be conventional nat-ural gas, Storm Cat will evaluate anycoalbed methane potential.

“We will be going through coal forma-tions and, while we won’t be testing them,we’ll be able to evaluate them through logcharacteristics and gas shows,”Zimmerman said.

Canadian companyStorm Cat is registered in British

Columbia and has offices in Denver,Calgary and Ulaanbaatar, Mongolia.According to the company’s web site“Storm Cat Energy is a rapidly growingexploration company focusing on develop-ing unconventional natural gas reservesglobally.”

The company first entered the Alaska oiland gas scene when it purchased two leasesnear Big Lake in the Alaska Mental Health

Trust Land Office November 2004 leasesale. The company went on to purchaseeight nearby leases in the State of Alaska’sMay 2005 Cook Inlet areawide lease sale.

“The recent (state) acreage we picked upcomplements the Mental Health Trustacreage, so we’re putting together theacreage position for both conventional gasand coalbed methane,” Zimmerman saidafter the state lease sale. “… Storm Catbelieves in the potential of north Cook Inletand that we’ll be able to (work) in an envi-ronmentally safe and sound manner.”

Although Storm Cat has been using ateam of Alaska consultants, the establish-ment of a company office in Alaska willdepend on drilling success at this “or thenext couple of wells,” Zimmerman said.Meanwhile the company is making use ofAlaska services and personnel.

“We are using local Big Lake area con-tractors and services from Alaska,”Zimmerman said.

—ALAN BAILEY

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INSIDERcontinued from page 1

STORM CAT

mit applications.” HB 336 and Senate Bill 203 give the

state’s resource agencies — the departmentsof Environmental Conservation, Fish andGame and Natural Resources — until July1, 2007, to adopt a unified permit applica-tion form. Following the adoption of theform, “the unified permit application shallbe the only application required for any per-mitting action by the resource agencieswhen a project requires permits from two ormore resource agencies.” The bills also pro-vide that the resource agencies will makethe uniform forms available in both elec-tronic and printed formats.

Natural resource agencies would berequired to provide permit applicationinformation on the Internet by July 1, 2007,and by July 1, 2008, to have an interactiveapplication on the Internet, “or other meansfor an applicant to determine what permit orpermits” the applicant must obtain fromeach resource agency, along with “informa-tion concerning the procedure for eachagency’s review of a unified permit applica-tion.”

By July 1, 2008, each agency must alsohave in place the process for submitting theunified permit application on the Internet.

Permitting an issue Industry has complained about the num-

ber of different permit applications requiredby different departments.

John Barnes, Marathon Oil’s Alaskamanager, has tabulated and talked about thenumber of permits required for work on theKenai Peninsula, where Marathon is amajor natural gas producer and explorer.

Geological consultant Arlen Ehm raisedthe issue of multiple, and different, forms ata House Special Committee on Oil and Gashearing in November. The committee hadasked what the Legislature could do toencourage independent activity in the state.Gardner is a member of the committee.

Ehm told the committee that Lower 48independents aren’t interested in coming toAlaska because of high entry costs, highoperating costs, high risk, permitting prob-lems, excessive bureaucracy, excessiveenvironmental constraints, long lead time,remote exploration targets, seasonal opera-tional restrictions, lack of infrastructure andseasonal access.

Ehm said the state can’t do anythingabout most of those problems, but it canaddress permitting problems. He said com-panies looking at Alaska have all heard“horror stories about the permittingprocess.”

He recommended cataloguing existingregulations for permitting, developing “aunified integrated information gatheringsystem covering all agencies thereby avoid-ing duplication,” putting this online whereapplicants can access it and where all the

agencies can retrieve applications filedonline.

Ways & Means hearingsThe House Special Committee on Ways

and Means has scheduled a hearing on HB223 for Jan. 11 and on HB 63 for Jan. 13.

This will be the first hearing for the bills.HB 63 was introduced in January 2005; HB223 was introduced in March 2005.

In his sponsor’s statement Gara said HB63 recognizes that smaller and older fieldsneed some severance tax relief, but providesfor a minimum production tax of 5 percent,a “modestly” higher tax at higher oil pricesand a lower tax at lower oil prices.

Gara characterized HB 63 as the “Alaskafair share bill.”

While the state is still negotiating withthe North Slope producers for gas pipelinefiscal terms, those negotiations have beenexpanded to include oil taxes. Changes inthe state’s oil taxation would require legis-lation.

Gara has also pre-filed HB 332 and HB333, which would provide what hedescribes as a “modest increase in oil taxes”to fund education enhancements. HB 332would provide schools with funds to hireparental involvement coordinators as wellas funding financial incentives for teachersto obtain masters degrees, Gara said in aJan. 4 statement. HB 333 would create a

continued from page 1

AGENDA

BOB LOEFFLER

see AGENDA page 16

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ties by simply acting as a middle-man toprovide all or some of its commitments,”the attorney general said.

“It is highly improbable that the partyselling gas to Marathon would be able tonegotiate a gas sales price and relatedterms sufficient to encourage the level ofexploration and production activity need-ed on a sustained basis between now and2018,” said Paul Craig, manager of

Trading Bay Oil and Gas.Enstar, in its submission to RCA, justi-

fied the unrestricted ability of Marathon topurchase gas on the grounds that “whengas is scarce it is not desirable to make itmore difficult to discover, produce ordeliver or to otherwise limit the sellers

alternatives to procure gas to meetEnstar’s requirements.” Enstar also point-ed out that Marathon may want to developgas storage facilities and then purchasegas, typically in the summer, to store tomeet peak winter demand.

So, what will be the upshot of thedebate regarding the new Marathon-Enstar contract? The RCA will at somestage rule on whether to investigate thecontract. And Giard has said in the pastthat “the test for approving gas supplycontracts is whether the contract providesa reliable source of gas at a reasonableprice.”

But maintaining a Cook Inlet gas mar-ket that assures future supplies at reason-able prices clearly presents something of achallenge.●

16 PETROLEUM NEWS • WEEK OF JANUARY 8, 2006

two days after Canada’s federal electioncampaign — to start its proceeding inInuvik on the Mackenzie Delta.

A Joint Review Panel has also setInuvik to begin probing environmentaland socio-economic issues on Feb. 14.

It is expected the process will involvestops at 20 Northwest Territories loca-tions, plus Whitehorse, Edmonton andCalgary and will wrap up in December.

But the schedule could be thrown offtrack by any one of several unresolvedaboriginal issues.

A case has been filed before theFederal Court of Canada by the DeneTha’ First Nation, which has land claimspending in northern Alberta and thesouthern Northwest Territories, andargues that Joint Review Panel hearingsshould be delayed until their concerns areresolved.

Talks are also continuing with the DehCho First Nations, whose land coversabout 40 percent of the pipeline route, andwho have been a persistent wild card byrefusing to join northern native regions insettling benefits and access agreements.

Complicating matters, the K’asho,Gotine and Tulita/Deline communitieshave requested additional time to con-clude their agreements.

Concern that Alaska could go firstOn the larger front, John Duncan, a

Canadian Member of Parliament and a

natural resources spokesman for theConservative Party, says the Mackenziesupplies are needed and the economicsare right.

But he shares the concerns of manyothers in government and the industrythat if the Mackenzie plan stumbles, theAlaska project will surge ahead.

Alaska has support from an unlikelysource that is expected to figure large inthe Mackenzie hearings.

Sierra Club directors Elizabeth Mayand Carl Pope have made a case toExxonMobil (parent of Imperial Oil, theMackenzie’s lead partner) to abandontheir Canadian plans “in favor of advanc-ing” Alaska.

They say an Alaska pipeline wouldcause less ecological damage than aMackenzie route through boreal forestand taiga and the associated spin-offresource development along the right ofway.

May and Pope also argue theMackenzie gas would be exclusively usedas an energy source to increase oil sandsproduction in Alberta, adding to Canada’sgreenhouse gas. Also under way are criti-cal negotiations between the Mackenzieproponents and the Canadian governmenton the federal offer to assume a “greatershare of the project downside risks pro-vided it is able to increase its share of thepotential rewards” — the breakthroughthat made it possible for the project con-sortium to notify the National EnergyBoard it was ready to proceed to publichearings.●

Key players in the Mac regulatory process • National Energy Board: Canada’s federal energy regulator has assigned a three-

member panel consisting of chairman Ken Vollman and members Gaetan Caron andDavid Hamilton to conduct the main review and decide whether to approve or rejectthe project. That finding will also draw on the Joint Review Panel report. That reviewhas 120 registered interveners.

• Joint Review Panel: A seven-person panel, including four aboriginal andNorthwest Territories residents, will examine the potential social, environmental andeconomic impacts of the project and decide what, if any, conditions should be imposedon the licenses and permits. It has 99 individuals and organizations registered as inter-veners.

• Mackenzie Valley Land and Water Board: It has a mandate to regulate the use ofland, water and waste deposits in the Mackenzie Valley. It is drawn from the Gwich’inLand and Water Board and the Sahtu Land and Water Board, with other board mem-bers nominated by First Nations, the Northwest Territories government and a chairappointed by the federal Indian and Northern Affairs Minister Andy Scott.

• Northwest Territories Water Board: Its function is to monitor the conservation,development and utilization of the water resources in the Inuvialuit region of theNorthwest Territories.

Apart from the main applications, more than 4,000 licenses, permits and agree-ments are needed during the planning, construction and start-up phases of the project,covering benefits and access, wildlife compensation, land use, surface tenure, wateruse, quarry, bird sanctuary access and fisheries approvals.

Among the logistical challenges, apart from coordinating the two hearing streams,the Northwest Territories uses English and French — Canada’s two official languages— and nine aboriginal tongues, all of which the National Energy Board and JointReview Panel said it welcomes in statements, evidence and verbal presentations.

continued from page 1

HEARINGS

fund to reinstitute public pre-school for par-ents who want their children to attendschool before Kindergarten. Gara and Rep.David Guttenberg, D-Fairbanks, are thesponsors of HB 340, which would levy asupplemental income tax on oil revenue forpostsecondary and vocational educationand create grant programs for postsec-ondary and vocational education students.

Croft’s gasline now actCroft said in his sponsor statement that

HB 233 “is a useful tool for guaranteeingconstruction of a gas pipeline from theNorth Slope, encouraging exploration fornatural gas, and for filling the state’s struc-tural budget deficit until that pipeline getsbuilt.” Croft’s proposal is to charge “a feefor storing Alaska’s gas in the largest gasfields,” a fee which would go away once agas pipeline is completed.

Croft is also gathering signatures to putthis proposal on the ballot as an initiative.

The annual tax would be 3 cents perthousand cubic feet of gas at Prudhoe Bayand Point Thomson; once a pipeline isbuilt and gas is flowing, Croft said, a com-pany could get the amount of the tax back

as a credit against severance tax on naturalgas shipped in the line.

Energy studies, energy reimbursementsRep. Ethan Berkowitz, D-Anchorage,

has introduced a bill to create the Alaskaenergy research and development programin the Alaska Energy Authority, with aCommittee on Alaska Energy Research andDevelopment to assist in program develop-ment.

The goal of the program would be to“improve the development and applicationof reliable and cost-efficient alternativeenergy sources in the state to reduce the costof energy paid by Alaska communities and

make them less dependent on nonrenewablefuels and costly energy supplies.”

Senators Gene Therriault, D-North Pole,and Al Kookesh, D-Angoon, co-sponsoredtwo bills, SB 214 and SB 215, proposing touse some of the state’s oil tax revenues forenergy assistance and weatherization and asan energy dividend for 2005.

Therriault said in mid-December that theproposals would give back a portion of thestate’s current budget surplus to Alaska by a$250 energy rebate, additional funds forPower Cost Equalization and $10 millionfor the Low Income WeatherizationProgram (see story in Dec. 18, 2005, issueof Petroleum News). ●

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AGENDA

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CONTRACT