OCS decision out · 2 PETROLEUM NEWS • WEEK OF APRIL 4, 2010 contents Petroleum News North America’s source for oil and gas news FINANCE & ECONOMY 7 Geologic Material Center making

Vol. 15, No. 14 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of April 4, 2010 • $2

� L A N D & L E A S I N G

� U T I L I T I E S

� G O V E R N M E N T

FERC OKs TC Alaska open seasonplan; requires data room opening

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Photos posted April 2, 2010

CLICK FORCONTENTS PAGE

:: Game launched by oil sands activists

:: AlMisnad: Back from Antarctica w/message

:: Oil sands: Hunting for the Holy Grail

:: Iceberg detection radar working again

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Two new articles about Alberta’s oil sands in Greening of Oilinclude an article about the Tar Nation game launched by anti-oilsands activists and another titled “Oil sands: Hunting for the HolyGrail,” which is about the search for technology that can retrievedeep bitumen reserves. An oil sands technology series starts laterthis month in the online magazine.

Oil sands coverage steps up

OCS decision outDOI upholds 2008 Chukchi sale but defers further Arctic leasing to 2012

By ALAN BAILEYPetroleum News

On March 31, in a landmark U.S. energy policystatement, President Obama and Interior

Secretary Ken Salazar announced continued supportfor U.S. oil and gas development alongside theObama administration’s push towards the increaseduse of renewable energy sources.

Given the need to sustain economic growth, createjobs and maintain business competitiveness theUnited States will need to continue to harness tradi-tional sources of fuel at the same time as the countryramps up new sources of domestic, renewable energy,Obama told military personnel at Andrews Air ForceBase. Consequently, the U.S. Department of the

Key Alaska changes in lease sale program

On March 31, in parallel with a majorstatement by President Obama and InteriorSecretary Ken Salazar on the Obama admin-istration’s strategy for outer continental shelfoil and gas leasing, the Department of theInterior filed a preliminary revised U.S.Minerals Management Service 2007-12outer continental shelf lease sale programwith the United States Court of Appeals forthe District of Columbia. Proposed changesin that program represent Interior’s response

see OCS DECISION page 14see CHANGES page 15

RCA reg for GRETC?Lawmakers, regulators, consumer groups, utilities make case pro, con regulation

By ERIC LIDJIFor Petroleum News

When the Railbelt utilities want to show whatthey have done together and what they can

do together, they point to Bradley Lake, the majorhydroelectric dam in Kachemak Bay.

The six utilities each own a share of the 126megawatts of peak power produced at the plant and,along with considerable state money, split the cost tobring it online.

That was 20 years ago. Now, the six Railbelt utilities are throwing their

weight behind the Greater Railbelt Energy andTransmission Corp., a cooperative based on the

Bradley Lake model.Only many magnitudes larger. Instead of jointly owning one power plant,

GRETC, as the cooperative is being called, couldown every power plant in the Railbelt, all of thetransmission lines to move that power hundreds ofmiles across urban Alaska, and, in some iterations, alot more, like significant assets of the fuel produc-tion side of electricity making: leases and pipelines.

Or it could own a lot less than that, becauseGRETC is an optional corporation. The utilities canchoose whether to join, and can participate in it asthey see fit. That flexibility is the guiding principleof a recent committee substitute for the legislation,

see GRETC page 18

Arctic probe launchedCanada, U of Calgary in joint effort to promote energy investment, security

By GARY PARKFor Petroleum News

More than just the level of waters in the ArcticOcean is rising as sea ice melts.

So is the pace of research within the Canadiansegment, opposition from a Canadian-Alaskancoalition to fossil fuel exploration in the region andeven attempts to resolve a boundary spat betweenCanada and Denmark.

A major push to advance research into Arcticenergy and the environment was launched March26 through an agreement between the Universityof Calgary and the Canadian government.

The pact is designed to gain a better under-standing of the Arctic’s energy potential, while bol-

stering Canada’s sovereignty claims over theNorth.

Under the deal, Natural Resources Canada andthe U of C will establish a research center inCalgary, sharing laboratory space and equipment

AlMisnad: Back from Antarctica,sustainability message in hand

There’s greenery in Antarctica.Moss, hair grass and lichen-like

sprigs sprout from the rocks on KingGeorge Island, the largest of the islandson the squiggly tip of the continent thatreaches for South America.

Abdulla AlMisnad, the Qatari nativeand Shell Oil engineer who logged his15-day journey to Antarctica forPetroleum News’ sister publicationGreening of Oil, posted photographs ofthis vegetation on March 23, after his return to Doha, Qatar.

Summer is just wrapping up in the southern hemisphere,which includes Antarctica. In Qatar, temperatures top 80

Greening of Oil: Latest from Mac Ackers

GAME PLAYING GETS SERIOUS… Interesting story by Canadian writerGary Park posted April 1 atwww.greeningofoil.com. And no, it’snot an April Fool’s spoof. Anti-oilsands activists have created an onlinevideo game called Tar Nation, whichPark says widens the gap betweenenvironmentalists and the oil sandsindustry. Characterizing the develop-ment of northern Alberta’s bitumenresources as a crime against nature, the game targets gov-ernment support for oil sands development by allowingplayers to spray oil at Canadian Prime Minister StephenHarper and Michael Ignatieff, leader of the opposition

ABDULLA ALMISNAD

see ANTARCTICA page 20

see MAC ACKERS page 17

MAC ACKERS

see PROBE page 19

“This is all about breaking down barriersbetween two silos (government andacademia),” bringing together the

previously separate research efforts ofNatural Resources Canada and the

university. —Dave Eaton, head of the U of C’sgeosciences department

http://www.PetroleumNews.com/

http://www.greeningofoil.com/

2 PETROLEUM NEWS • WEEK OF APRIL 4, 2010

contents Petroleum News North America’s source for oil and gas news

FINANCE & ECONOMY

7 Geologic Material Center making changes

9 FERC approves TC Alaska open season plan

LAND & LEASING

SAFETY & ENVIRONMENT

NATURAL GAS

GOVERNMENT

8 Coastal zone change bills heard and held

Proposal to return to more coastal district control overdevelopment supported by communities, opposed by administration, industry

5 Board lone voice among gas forecasters

Conference Board of Canada forecasts 36% rise in ’10gas prices, others scramble to revise down; board expects 20% profits gain

7 Alberta land sales shoulder BC aside

After losing top rung on O&G lease sales ladder for two years running, Alberta back on top for 2009-10 fiscal year with C$1.14B

6 Bullets, flaring Point Thomson concerns

Shots from hunters could pierce pipeline and gas burn-off could melt tundra, Alaska official says in review of ExxonMobil project

4 Refinery trek: From Alaska to New Guinea

Nikiski Investors — group who helped buy, relocateChevron refinery — press lawsuit in Texas against InterOil CEO Phil Mulacek

EXPLORATION & PRODUCTION

11 UTS Energy clings to Fort Hills hope10 Pioneer finds no wrongdoing at Oooguruk

12 DEC to monitor Chukchi water quality

14 EPA issues Shell’s Chukchi Sea air permit

11 Alaska Pacific Energy still interested

13 Fairbanks utility to buy North Slope LNG

12 Pioneer preps for Cosmopolitan waterflood

Although independent hasn’t yet sanctioned oil fielddevelopment in Alaska’s Cook Inlet, it wants to lay the regulatory groundwork

13 House bill to reduce ACES tax tabled

Senate proposal to decouple progressivity on oil and gasmoves out of Finance; companion bill has been heard in House Resources

AlMisnad: Back from Antarctica, sustainability message in hand

Greening of Oil: Latest from Mac Ackers

ON THE COVEROCS decision out

DOI upholds 2008 Chukchi sale but defers further Arctic leasing to 2012

RCA reg for GRETC?

Lawmakers, regulators, consumer groups, utilities make case pro, con regulation

Arctic probe launched

Canada, U of Calgary in joint effort to promote energy investment, security

reach new horizons.

SIDEBAR, Page 1: Key Alaska changes in lease sale program

http://www.ukpik.com/

PETROLEUM NEWS • WEEK OF APRIL 4, 2010 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) Prudhoe Bay P2-22A BPSky Top Brewster NE-12 15 (SCR/TD) Badami B1-38 Savant AlaskaDreco 1000 UE 16 (SCR/TD) Prudhoe Bay 2L-304 BPDreco D2000 UEBD 19 (SCR/TD) Alpine CD3-121 ConocoPhillipsOIME 2000 141 (SCR/TD) Alpine CD3-301A ConocoPhillipsTSM 7000 Arctic Wolf #2 Stacked at Prudhoe Bay FEX/Available

Nabors Alaska DrillingTrans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay AvailableAC Coil Hybrid CDR-2 Kuparuk 1E-15 ConocoPhillipsDreco 1000 UE 2-ES Prudhoe Bay, Stacked out BPMid-Continental U36A 3-S Stacked, Milne Point BPOilwell 700 E 4-ES (SCR) Prudhoe Bay DS09-25 BPDreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay DS15-06 BPDreco 1000 UE 9-ES (SCR/TD) Point Macintyre PM2-31 BPOilwell 2000 Hercules 14-E (SCR) Kuparuk 2A-27 ConocoPhillipsOilwell 2000 Hercules 16-E (SCR/TD) Northshore #3 Brooks Range PetroleumOilwell 2000 17-E (SCR/TD) Stacked, Point McIntyre AvailableEmsco Electro-hoist -2 18-E (SCR) Stacked, Deadhorse AvailableEmsco Electro-hoist Varco TDS3 22-E (SCR/TD) Stacked, Milne Point AvailableEmsco Electro-hoist 28-E (SCR) Stacked, Deadhorse AvailableEmsco Electro-hoist Canrig 1050E 27-E (SCR-TD) Point Thompson PTU-16 ExxonMobilAcademy AC electric Canrig 105-E (SCR/TD) Stacked at Deadhorse AvailableAcademy AC electric Heli-Rig 106-E (SCR/TD) Stacked at Deadhorse AvailableOIME 2000 245-E Maintenance mobilization ENI

Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site E-15D BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site Z-16A BPIdeco 900 3 (SCR/TD) Kuparuk Well 2A-12 ConocoPhillips

North Slope - OffshoreNabors Alaska DrillingOIME 1000 19-E (SCR) Oooguruk ODSK-35Ai Pioneer Natural ResourcesOilwell 2000 33-E Northstar, Stacked out BP

Cook Inlet Basin – OnshoreAurora Well ServiceFranks 300 Srs. Explorer III AWS 1 Stacked out at West Mac, Available

waiting on weather to barge out

Doyon DrillingTSM 7000 Arctic Fox #1 Stacked at Beluga Available

Marathon Oil Co. (Inlet Drilling Alaska labor contractor)Taylor Glacier 1 Paxton #3 Marathon Oil

Nabors Alaska DrillingContinental Emsco E3000 273 Stacked, Kenai AvailableFranks 26 Stacked AvailableIDECO 2100 E 429E (SCR) Stacked, removed from Osprey platform AvailableRigmaster 850 129 Kenai SLU 41-33RD Chevron

Rowan CompaniesAC Electric 68AC (SCR/TD) Stacked Kenai, Cosmopolitan Pioneer Natural Resources

Cook Inlet Basin – Offshore

Chevron (Nabors Alaska Drilling labor contract)428 M-17 Steelhead platform Kenai Chevron

XTO EnergyNational 1320 A Platform A no drilling or workovers at present XTONational 110 C (TD) Idle XTO

Kuukpik 5 Stacked in Kenai Available

Mackenzie Rig StatusCanadian Beaufort Sea

SDC Drilling Inc.SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Available

Central Mackenzie Valley

Akita/SAHTUOilwell 500 51 Racked in Norman Wells, NT Available

Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of April 1, 2010.

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 Marti Reeve

Baker Hughes North America rotary rig counts*March 26 March 19 Year Ago

US 1,444 1,427 1,039Canada 203 320 104Gulf 51 49 40

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

http://www.conocophillips.com/

By WESLEY LOYFor Petroleum News

In 1994, Chevron sold its oil refinery inthe Nikiski community on Alaska’s

Kenai Peninsula.The buyer eventually disassembled the

plant, packed up the components and tookthe refinery away to make finished petrole-um products elsewhere.

And that was that.But wait. It turns out that, 16 years later,

the sale of that refinery remains a topic ofgreat interest.

It’s at the heart of a Texas lawsuitinvestors are pressing against a companythat got its start off the refinery deal andsince has become a nearly $3 billion energyconcern publicly traded on the New YorkStock Exchange.

The civil suit contends that PhilMulacek, chairman and chief executive ofInterOil Corp., raised $2 million from agroup known as the Nikiski Investors to buythe refinery and later watered down theirstake through a complex series of transac-tions.

It’s a globe-trotting case that moves from

Alaska to the Bahamas to Papua NewGuinea, where the former Chevron refinerywas relocated and where InterOil says it’splanning to export liquefied natural gas.

InterOil’s riseMulacek and Nikiski Partners Ltd.

closed on the refinery purchase on April 1,1994, court records say.

Chevron had operated the refinery from1963 to 1991, when the company closed itdown due to a combination of potentialenvironmental liability, marginal profits andthe need for costly upgrades. It was Alaska’sfirst oil refinery, capable of processingabout 28,000 barrels per day of crude.

Mulacek, a petroleum engineer whostudied at Texas Tech, was able to swing therefinery purchase with money raised from anumber of investors, mainly people livingand working in Montgomery County, Texas,the civil suit says.

They invested in partnership units cost-ing $50,000 each, and were promised a 20percent stake in any subsequent ventureformed to relocate the refinery, the suit says.

Mulacek identified Papua New Guineaas a good place for the refinery, and a fed-eral agency, the Overseas PrivateInvestment Corp., in 2001 agreed to lend$85 million to InterOil — formed in 1997— to rebuild the refinery, according to courtpapers, the InterOil Web site and a Jan. 21,2007, article in the New York Times.

Today, InterOil has “the only petroleumrefining facility in Papua New Guinea andproduces a range of products that are usedto supply the entire domestic refined prod-uct needs in Papua New Guinea,” the com-pany’s Web site says.

Headquartered in Cairns, Australia,InterOil says its assets also include petrole-um licenses covering 3.9 million acres, and“gross best case contingent resources” of8.2 trillion cubic feet of natural gas and 156million barrels of condensate, a March 29company press release says.

“The stock price of InterOil is driven bythe discovery of gas on licenses granted bythe government of Papua New Guinea,” saycourt papers filed in December. “Butbecause there is no demand for gas in PapuaNew Guinea, InterOil is seeking outsidepartners to invest $4 to $5 billion in an LNGplant.”

The plant would be built on a site adja-cent to the refinery at the capital city of PortMoresby, InterOil says.

Fraudulent scheme allegedIn their long and involved civil suit,

the investors in the Alaska refinery pur-

chase argue Mulacek and others defraud-ed them by diluting their equity through aseries of transactions and new companycreations in Canada, the Bahamas, theCayman Islands and Papua New Guinea.

Media coverage of InterOil Corp. hasbeen mixed, with some observers ques-tioning the legitimacy of the company’sgas and oil reserves estimates. GaryDvorchak, a hedge fund manager andcontributing writer for RealMoney.com,recently noted InterOil’s market surge tonearly $3 billion but also its lack of pro-duction “despite years of breathless pressreleases.”

InterOil, in its March 29 press release,responded to a different media report thatfocused on the Nikiski Investors lawsuitand a related bankruptcy filing.

“InterOil Corporation believes thatallegations made in an article concerningcertain litigation which has been ongoingin Texas since 2005, have been raised nowin an attempt to divert attention from thesuccessful operations of the company,”the press release says. “The article wastimed to benefit recent short selling activ-ities.”

In its annual report filed March 2 withthe U.S. Securities and ExchangeCommission, InterOil acknowledged theTexas civil suit, describing the plaintiffsas “members of a partnership that boughta modular oil refinery that was subse-quently, through a series of transactions,sold to a subsidiary of the Company.”

If the plaintiffs win at a trial set forOctober, actual damages could exceed$125 million, InterOil said, adding: “TheCompany and other defendants are vigor-ously contesting the matter.”

Short-lived bankruptcy caseNikiski Partners Ltd., which had pur-

chased the Chevron refinery in 1994 andis a defendant with Mulacek and InterOilin the Texas civil suit, on Dec. 4 filed forChapter 11 bankruptcy reorganization inHouston.

Nikiski Partners listed assets of $10million to $50 million, and debts of$50,000 or less.

Trey Wood, the lawyer for NikiskiPartners, filed papers attempting to movethe Texas suit into the federal courts. Heargued the outcome of the suit could “sig-nificantly affect Nikiski’s bankruptcyestate,” as its asset value is based onInterOil stock.

“A sizeable judgment against InterOilwill cause the price of InterOil stock tosharply decline and will substantiallyimpair InterOil’s ability to sell securitiesor attract outside investors,” Wood wrote.

U.S. Bankruptcy Judge Marvin Isgur,however, ruled the bankruptcy petition“was filed in subjective bad faith.” Hesigned a Jan. 19 order closing the Chapter11 case. �


Kay Cashman PUBLISHER & EXECUTIVE EDITOR

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

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OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 15, No. 14 • Week of April 4, 2010

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� F I N A N C E & E C O N O M Y

Refinery trek: From Alaska to New GuineaNikiski Investors — group who helped buy, relocate Chevron refinery — press lawsuit in Texas against InterOil CEO Phil Mulacek

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Chevron had operated the refineryfrom 1963 to 1991, when the

company closed it down due to acombination of potential

environmental liability, marginalprofits and the need for costly

upgrades.

Contact Wesley Loy at [email protected]

http://www.nac.aero


The Conference Board of Canada has adose of good news for natural gas

producers, predicting a 36 percent hike inprices from the 2009 low, doubling profitsafter a 65 percent plunge last year.

But board economist Todd Crawfordsaid the gains won’t have much impact ondrilling activity “as Canada continues toride out the remaining effects of the reces-sion.”

The board is a lone voice in predicting aprice rebound, with Martin King, vice pres-ident of institutional research withFirstEnergy Capital, telling producers toexpect prices to remain in the doldrumsbecause the volume of working gas still instorage in Western Canada is “troubling tosay the least.”

The board expects 2010 prices to aver-age C$5.44 per thousand cubic feet atAlberta’s AECO trading hub and to make astrong increase through the forecast period,reaching C$9.30 by 2014 because of risingdemand for cleaner, inexpensive sources offuel, along with falling North Americansupplies, which Crawford said should keepinventories in balance.

Canada’s production sector should seeprofits grow by 20 percent from 2009 toC$5.9 billion, regaining some of the pun-ishing decline last year.

“Profits responded quickly to low pricesin 2009, falling 65 percent to C$2.1 bil-lion,” said the board’s report. “The resultcould have been even worse were it not forthe industry’s ability to curtail investmentspending and cut costs in a timely manner.”

Costs are expected to rise again thisyear, but not as rapidly as revenues becauseof weak investment that will last at leastone more year, the board said.

However, it is counting on costs almostdoubling over the 2010-14 period, keepingthe average annual growth in profits under10 percent.

The forecast was completed before theAlberta government made its gas royaltyadjustments, but the board doubts thosechanges will have much impact on the2010 forecast.

“On the production front, laggardeffects from low drilling levels last yearwill push production down once again in2010. Revenue growth will be unable tokeep up with prices, expanding just 21.8percent to C$47.8 billion,” the independentresearch organization said.

Revenues will largely remain in lock-step with price movements over the nextfour years, but will increase at a sloweroverall pace as a result of declining pro-duction, reaching C$56.6 billion in 2011,then average 11.7 percent annual growth toreach C$78.8 billion in 2014.

Production will follow an 8.3 percentdecline in 2009, with a 2 percent drop thisyear, easing to a 1.1 percent decline for thebalance of the forecast period.

But the outlook in Alberta is grim forsmaller pools that represent 72.6 percent ofremaining discoveries in the province,while accounting for only 14 percent ofremaining reserves.

The report said competition with the oilsands sector for materials and labor, com-bined with a fall in initial productivity, willresult in average annual declines of 3 per-cent in Alberta.

Trailing a 30 percent decline in 2009,spending on capital and materials is pre-dicted to rebound by 12.9 percent this year

to C$41.9 billion, recovering about 1,600lost jobs; strong wage growth in 2009 willfuel a rise in labor costs.

An increase in per unit costs of produc-tion, notably in Alberta where initial wellproductivity is shrinking, combined withhigher royalty payments, will contribute toa 21.6 percent increase in material costs toC$23.8 billion in 2010.

The recovering strength in profits in thefinal quarter of 2009 is expected to remainon track in 2010, with revenues on average

outpacing costs by a slight margin between2011 and 2014 for an average annualincrease of 9.1 percent to C$8.3 billion by2014 — still short of the record year in2005.

Record February storageIn his report FirstEnergy’s King said gas

storage in Western Canada ended Februaryat a record peak of 334.6 billion cubic feet,up year-over-year by 45.5 bcf, with slug-gish demand and reduced net exports off-setting lower supplies as a result of a mod-est February withdrawal of 38.3 bcf — oneof the lowest levels in five years.

He said cumulative withdrawals appearto be falling short of FirstEnergy’s “previ-ous aggressive expectation and (are) possi-bly the slowest in the past decade.”

King conceded that FirstEnergy’s boldforecast of total withdrawals for Februaryand March of more than 100 bcf and possi-bly as high as 125 bcf “now looks com-

pletely laughable … nay, downright embar-rassing. We will be lucky if we generateeven a quarter of the 125 billion cubic feetwithdrawal we so brashly forecast a littlemore than one month ago.”

He said FirstEnergy is troubled by thefact that the “relative level of storage inWestern Canada has usually been a goodshort-term predictor of bearish or bullishdirection in the marketplace.”

“Needless to say, with western storagealready starting to fill in March, storage atrecord high levels and overall cumulativewithdrawals falling well short of expecta-tions as the current heating season nears anend, the price bear signals from this ‘indi-cator’ are rather blinding.”

Price reductions in forecastsGiven all of these factors, King said

FirstEnergy is adopting an “outright bear-


“For someone new to the state or for a company that does not already have a large production base ... credits for capital investment and the credit for net operating losses are very advantageous.”

Savant Resources, 2009

The State of Alaska pays up to 40% of exploration costsTax increases and decreases with oil prices and level of

investment: The more you invest, the less tax you payLower taxes for Cook Inlet and in-state gas useCredit for capital investments, plus a 25% credit for net losses

Alaska is successfully encouraging investment from companies that are new to the state, with the number of petroleum companies doing business in the state almost doubling between 2006 and 2008.Legacy producers on the North Slope are investing in their own assets, leaving room for new players, as evidenced by Pioneer’s Oooguruk (production started in 2008) and ENI’s Nikaitchuq (expected to start production in 2010).The past two years of lease sales on the North Slope successfully leased a total of 1,276,207 acres, all to smaller companies.

“[T]he state has been a good partner for new explorers.” (Brooks Petroleum Corporation, 2008)

Alaska: We’re Open For Business!Division of Oil and Gas550 West 7th Avenue, Suite 1100Anchorage, Alaska 99501-3560tel: 907-269-8800http://www.dog.dnr.state.ak.us/oil/

� N A T U R A L G A S

Board lone voice among gas forecastersConference Board of Canada forecasts 36% rise in ’10 gas prices, others scramble to revise down; board expects 20% profits gain

“On the production front, laggardeffects from low drilling levels last

year will push production downonce again in 2010. Revenue

growth will be unable to keep upwith prices, expanding just 21.8

percent to C$47.8 billion.” —Conference Board of Canada

see FORECAST page 7

http://www.dog.dnr.state.ak.us/oil


The Alaska Department of NaturalResources sees potential for a couple

of quirky problems with ExxonMobil’sPoint Thomson field development.

One has to do with stray bullets. Theother concerns a really hot flame.

In comments submitted recently to theU.S. Army Corps of Engineers, which ispreparing an environmental impact state-ment for the Point Thomson project, theDNR noted it wants to see howExxonMobil plans to bullet-proof a newpipeline it will build to carry PointThomson production.

And the DNR suggested that a proposedgas flare at the field might need to be high-er off the ground to avoid damage to thetundra.

ExxonMobil is aiming to start produc-ing 10,000 barrels a day of gas condensateby the end of 2014 from Point Thomson, a

rich oil and natural gas field along Alaska’sBeaufort Sea coastline just west of theArctic National Wildlife Refuge.

Stray roundsDon Perrin, DNR’s project management

and permit coordinator, submitted thedepartment’s comments to the ArmyCorps.

In an interview with Petroleum News,Perrin said the issue of stray bullets cameup strongly at scoping meetings the Corpsheld in January in North Slope villagesincluding Kaktovik and Nuiqsut.

Hunters from Kaktovik, which is on theBeaufort Sea coast inside ANWR, oftentravel west to the area of the PointThomson development and shoot fromboats at caribou on the tundra, Perrin said.

The worry of North Slope residents, hesaid, is that stray bullets could pierce a new22-mile elevated pipeline ExxonMobilplans to lay along the coastline to feedPoint Thomson production into an existingpipeline at the Badami field to the west.

“Exxon is trying to respond to the con-cerns,” Perrin said.

The options include beefing up the bul-let resistance of the 12-inch pipeline, ormoving the line farther inland, he said.

In an October 2009 project descriptionsubmitted to the Corps, ExxonMobil wrote:

“The export pipeline route traverseslocal hunting grounds and, therefore, itsdesign must consider the potential for acci-dental bullet strikes. The design will con-sider rifle calibers and ammunition typical-ly utilized in the area for caribou hunting,and may incorporate additional wall thick-ness if required to prevent penetration frombullets fired from the coastline.”

Bullets can cause spillsPerrin, in his comments to the Corps,

wrote that ExxonMobil had indicated inrecent discussions that the pipe wall thick-ness would be increased to better resist bul-let strikes.

Perrin suggested more information beprovided about the revised design, butadded: “ExxonMobil and the State shouldalso take into consideration the need forconfidentiality in publishing data on bulletimpact resistance, as this is informationdescribing how to create a pipeline ruptureor breach.”

Alaskans know from experience that oilpipelines and bullets can be a bad combi-nation.

In October 2001 a man with a high-powered rifle shot the trans-Alaska oilpipeline near the Livengood communityabout 80 miles north of Fairbanks. The bul-let pierced the steel pipe and insulatingjacket, unleashing a jet of oil into nearbywoods.

An estimated 285,600 gallons of oilspilled over 36 hours before responderscould seal the bullet hole amid worry thefine oil mist in the air might explode.

The drunken shooter, Daniel CarsonLewis of Livengood, was convicted on avariety of charges and drew a multiyearprison sentence.

The Point Thomson flareAnother issue Perrin raised with the

Army Corps is the height of the elevatedgas flare proposed for the Point Thomsonfield.

Such flares are commonly used aroundoil and gas fields to provide a safe way toburn off gases during maintenance orwhen process upsets or emergenciesoccur.

At 40 feet off the ground, the proposedPoint Thomson flare might not be highenough to prevent heat transfer that coulddamage the tundra, melt the permafrostand liquefy nearby water bodies, Perrintold Petroleum News.

He noted that heat transfer from an ele-vated flare has been a problem at Alpine,a ConocoPhillips-operated oil field on theNorth Slope.

“Alpine’s flare is located along the riverchannel adjacent to a thaw bubble near thewater’s edge,” Perrin wrote in the DNRcomments to the Army Corps.

The Point Thomson project, whichinvolves cycling gas to the surface for col-lection of condensate, is expected to “pro-duce enormous volumes of gas” and mayneed to flare in the event of problems,Perrin wrote.

“As such, flaring and its environmentaleffects should be fully evaluated,” hewrote.

An environmental report ExxonMobilsubmitted to the Corps in November saysa lower flare would be less visible inANWR, and less noisy.

The company’s proposed flaring sys-tem actually would feature two flare tipsmounted atop vertical risers. One wouldbe about 120 feet up for high-pressuregases, with another about 40 feet high forlow-pressure gases.

The low-pressure flare would be usedmost often.

“No routine flaring is planned at theProject site, other than the minor quanti-ties of purge and pilot gas that arerequired for safe flare operations,”ExxonMobil wrote. �


� S A F E T Y & E N V I R O N M E N T

Bullets, flaring are Point Thomson concernsShots from hunters could pierce pipeline and gas burn-off could melt tundra, Alaska official says in review of ExxonMobil project

The company’s proposed flaringsystem actually would feature two

flare tips mounted atop verticalrisers. One would be about 120feet up for high-pressure gases,with another about 40 feet high

for low-pressure gases.


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On the face of it, the natural order isbeing restored in Western Canada,

as Alberta regains its leading position inoil and natural gas land sales, endingBritish Columbia’s brief reign on the toprung.

But it’s too soon for Alberta to startfeeling smug. Even newly installedEnergy Minister Ron Liepert is taking ameasured view of things.

What is a fact is that Alberta finishedahead of British Columbia in the 2009-10fiscal year after surrendering its title fortwo years.

It ended the budget year on March 31having pocketed C$1.14 billion in bonusrevenues, beating its own forecast byC$300 million, while British Columbia,despite a sizzling start, saw its auctionrevenue slump to C$896 million from arecord C$2.42 billion in 2008-09, fallingshort of a five-year average of C$1.4 bil-lion.

There might have been a tinge of dis-appointment for Alberta, whose final salefor 2009-10 auctions yielded onlyC$75.79 million for 269,616 hectares(666,221 acres), far ahead of the samesale a year ago, which generated a paltryC$2.97 million on 24,965 hectares.

Not strongest surgeBut the surge was less than the C$200

million-plus which Chris Theal, an ana-lyst with Macquarie Capital MarketsCanada, had anticipated from a strong

industry posting innorthern Alberta’shighly ratedDevonian Duvernayshale prospect.

And livelier bid-ding might havebeen expected in thefirst auction sincethe Alberta govern-ment announcedMarch 11 that it would lower maximumroyalty rates for initial conventional oilproduction to 40 percent from the 50 per-cent set in its now abandoned NewRoyalty Framework implemented in2009, and to 36 percent from 50 percenton conventional and unconventional gas.

The March 24 auction came on theheels of modest results on March 10 whenthe government raised C$168 millionfrom another bidding round dominated byDuvernay offerings. Theal, who had heldout hopes for up to C$900 million, said hewas “underwhelmed” by that industryresponse on the day before the royaltyadjustments were released.

Alberta collected C$867 million in2008-09, falling below the C$1 billionlevel it had come to expect until experi-encing a sharp decline after a 2005-06bonanza year when oil sands fever con-tributed to a total C$2.16 billion.

For the first quarter of this year, asurge in horizontal drilling and multistagefracturing has pulled Alberta out of thedeep hole it tumbled into a year ago,dragged down by a combination of theeconomic recession and industry hostilityto the then-new royalty regime.

To date, five auctions for the 2010 cal-endar year have tallied C$454.4 millionon 898,330 hectares at a per-hectare aver-age of C$505.82, compared with C$55.9million on 468,738 hectares averagingC$119.25, in the same period of 2009.

B.C. revenues fallBritish Columbia has also been rocked

after several years of an industry landgrab in its Montney and Horn Riverunconventional gas plays, with revenuesfalling to C$896 million on 379,077hectares at an average C$2,364 perhectare, compared with the C$2.42 bil-lion in 2008-09 for 653,509 hectares at anaverage C$3,710.

But the government has been caution-ing that that the best Montney and HornRiver prospects have been locked up,leaving its best hopes tied to explorationand development activity to create jobsand boost revenues.

The province’s five-year averagereturn for the fiscal years starting 2005-06 has been C$1.4 billion at a per hectareaverage C$1,960.

British Columbia’s three auctions thiscalendar year have produced C$43 mil-lion in bids on 41,436 hectares at an aver-age C$1,042 per hectare compared toC$39.73 million in the same period of2009 on 51,505 hectares at an averageC$771.

For Alberta, the emphasis is on regain-ing trust among investors, which has putLiepert on a selling trip to Toronto and

New York.

Low gas prices a factorHowever, he conceded that Alberta

doesn’t expect an overwhelming responseto its royalty adjustments at a time whenfrontend gas prices have fallen belowUS$4 per million British thermal units onthe New York Mercantile Exchange.

He said that if current price levels keepsliding it will be reflected in upstreamactivity.

He conceded that the timing of the roy-alty changes implemented on Jan. 1,2009, “could not have been worse” giventhe double whammy of a recession andsharp fall in commodity prices, forcingAlberta to take stock of a competitiveposition that had eroded over the lastdecade.

He describes the industry response tothe latest changes as “not a home run, buta solid double.”

The key now is to settle by May 31 ona commodity price curve that will be tiedto royalty levels, decide if first incentivesare required and clean up regulatory over-lap.

Liepert is not prepared to forecastwhen the royalty changes might take holdbecause of commodity price uncertain-ties. He said Alberta’s main current objec-tive is to ensure it is not an obstacle toinvestment. �


ish view” of price forecasts for the nextquarter, warning his firm will makelarge reductions in its January AECOforecast of an average C$6.20 for 2010and C$6.60 for 2011.

AJM Petroleum Consultants alsoexpects to downgrade its 2010 gasprice forecast, suggesting the balanceof 2010 will see New York MercantileExchange and AECO below US$5,compared with its December target ofUS$5.75 Nymex and C$5.80 AECO.

Richard G. DeWolf Consulting iscalling for a Nymex price of US$4-$5

and AECO of C$3.50-$4.50 per giga-joule as a continued recession in theU.S. and Canada acts as a drag ondemand.

Of the other forecasters, MacquarieCapital markets Canada is targetingAECO levels of C$4.30 in 2010 andC$4.90 in 2011, both down more thanC$1, and a Nymex average of US$4.55per million British thermal units thisyear and US$5.10 in 2011, whileScotiabank Group has its Nymex sightson US$5.50 per million Btu in 2010and 2011. �

continued from page 5

FORECAST

Contact Gary Park through [email protected]



Alberta land sales shoulder BC asideAfter losing top rung on O&G lease sales ladder for two years running, Alberta back on top for 2009-10 fiscal year with C$1.14B

RON LIEPERT

GOVERNMENTGeologic Material Center making changes

The Alaska Geologic Materials Center has adopted a newsletter format for itsmonthly reports. The newsletter, dubbed “The Sidewall,” highlights “goings-on atthe Alaska GMC including current projects, operational changes, outreach events,intern activities, future plans, and more,” GMC said March 30.

Newsletters for October through February are available as a downloadable PDFon the Division of Geological and Geophysical Survey’s GMC Monthly ReportsWeb page at http://bit.ly/9vNabf.

GMC Curator Kenneth Papp will be giving a presentation at the 2010 AlaskaGeological Society Meeting in Anchorage on April 16 about GMC going digital.Papp will also give a similar briefing at the American Association of PetroleumGeologists’ Preservation of Geoscience Data Committee session in New Orleanson April 13.

Both presentations will focus on “proactive changes being made at the GMCto ensure better material preservation and providing inventory details to users inintuitive, digital formats,” GMC said.

—PETROLEUM NEWS

http://www.alaska-analytical.com/

http://www.OptiStaffing.com/

By KRISTEN NELSONPetroleum News

A laska’s coastal communities want achange in the Alaska Coastal

Management Program to give them morelocal control over development. Theadministration and the oil and gas andmining industries want to keep thechanges legislated in 2003 which removeda 17-member policy council and movedcontrol of the program into theDepartment of Natural Resources.

Under the 2003 changes, new districtplans were required and local enforceablepolicies were curtailed.

Coastal districts have been fightingwith DNR’s Division of Coastal andOcean Management over the new districtplans and the two largest districts, theNorth Slope Borough and the NorthwestArctic Borough, have reached an impasseafter taking their disputes with the depart-ment to mediation.

Bills to return more of a voice incoastal development to local communitiesand create a new nine-member coastal pol-icy board composed of five members fromcoastal districts and four commissionerswere introduced last year in the AlaskaHouse and Senate. Those bills were heardand moved out of the Community andRegional Affairs committees in both bod-ies early in 2009, then languished in theResources committees until March of thisyear.

In the Senate, the ResourcesCommittee referral was waived March 24

and Senate Bill 4 was heard and held inSenate Finance March 30. House Bill 74was heard and held in the HouseResources Committee March 22.

As of the end of March, neither bill hadbeen scheduled for a further hearing.

The NSB viewNorth Slope Borough Mayor Edward

Itta testified on House Bill 74 inResources, telling legislators that the bor-ough supports the bill because it wouldrestore meaningful participation forcoastal districts, bring air and water quali-ty back into project review and restore thestate’s rights.

He told the committee that the ACMPhas always promoted development andsaid coastal districts have not used theACMP to stop projects. All coastal devel-opment since 1977 has been approvedunder the ACMP, he said, and prior to 2003less than 1 percent of projects wereappealed.

HB 74 does not allow citizen or third-party lawsuits, he said, noting that citizenlawsuits under the program were eliminat-ed in 2003 and citizen petitions were elim-inated in 2002.

Itta said ACMP is currently broken andhas lost its value to review participantsbecause it is no longer what it used to be— a tool to identify and resolve conflictsearly in the process.

The bill does not restore things to theway they were before 2003, when the pro-gram was essentially gutted, but doesrestore a local voice in the program

through local enforceable policies and acoastal policy board to decide disputes,Itta said.

Doing nothing not an optionItta said that by watering down the

coastal management program so that thereis virtually no local voice he believes theState of Alaska has effectively abandonedits opportunity to exercise influence incoastal waters and has handed over all thecards to the federal government.

“National environmental groups havejumped all over this vacuum,” he said, anda state program would help dampen that.

Short of having a local voice in ACMP,Itta said local options if the state doesnothing could include rewriting local reg-ulations and creating new hoops for proj-ects to jump through or perhaps workingwith the federal agencies through anArctic Regional Citizens’ AdvisoryCouncil.

Itta said he doesn’t believe a federalprogram is a good alternative, but said asNorth Slope Borough mayor, “doing noth-ing is not an option for me.”

He said districts on the edge of devel-opment believe HB 74 reestablishes andrefines a process that can give local dis-tricts a voice.

The City of Valdez, the NorthwestArctic Borough and the City and Boroughof Sitka all testified in House Resources infavor of HB 74.

Administration issuesRandy Bates, director of the Division

of Coastal and Ocean Management, saidthe department continues to have signifi-cant concerns with the drafting and sub-stance of the bill. He said issues raised lastyear have not been addressed and identi-fied those issues as related to the authori-ty of coastal district enforceable policiesas they relate to state and federal law. Hesaid there also is concern about the cre-ation of a new body to approve local dis-trict enforceable policies which overridestate statute.

He said the bill is specific to the con-cerns of specific ACMP participants anddoesn’t balance all concerns.

Bates said an example of a legal issue isa coastal district wanting to write policyon noise producing projects to address theimpact on marine mammals. But the fed-eral Marine Mammal Protection Act pro-hibits states from developing laws like thatand the state has been told it would be ille-

gal to implement such a local policy, hesaid.

On the legal issue, an attorney with theDepartment of Law told House Resourcesthat the legal issues are fundamental,adding that the Department of Law hasbeen seeking advice from the federal over-sight program but hasn’t received specificanswers from them.

Bates said of the 33 coastal districtswith plans prior to the legislative changesmade in 2003, five voluntarily droppedout. Of the 28 remaining, 25 have coastalplans, one is working toward a plan andtwo — the North Slope and the NorthwestArctic — pursued mediation with thedepartment and then declared an impasse;their plans remain unapproved. He saidthat from the department’s point of viewsignificant movement was made duringmediation, but there are outstanding issuesvery critical to those districts remaining.

He said the piece the department ismost interested in resolving is the relation-ship between coastal district enforceablepolicies and state and federal laws alreadyin existence.

Industry oppositionWhen Senate Bill 4 was heard in

Senate Finance March 30, the committeeheard from coastal districts supporting thebill but also heard from industry opposingit.

Steve Borell, executive director of theAlaska Miners Association, told the com-mittee the association believes ACMPdoesn’t work well, but doesn’t think thatSB 4 would improve that.

In a March 29 letter to the committeeBorell said,“this bill would create anadministrative quagmire for the state per-mitting process and would create tremen-dous uncertainty for all permittees.”Because the five public members must beselected by the governor from coastal dis-trict nominees, the coastal districts wouldcontrol board decisions. The bill wouldgive authority now held by DNR to thenew board, not elected by the public andnot confirmed by the Legislature, he said.

Marilyn Crockett, executive director ofthe Alaska Oil and Gas Association, toldthe committee the bill would take the stateback to what she called a “very bumpypermitting” process.

In a detailed letter detailing AOGA’sposition, she said the organization strong-ly opposes the bill. While “many legisla-


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� G O V E R N M E N T

Coastal zone change bills heard and heldProposal to return to more coastal district control over development supported by communities, opposed by administration, industry

see ACMP page 14


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The Federal Energy RegulatoryCommission has approved, with mod-

ifications, TransCanada Alaska’s plan forconducting an open season for the AlaskaPipeline Project.

FERC said in a March 31 order that theTC Alaska plan generally complies with itsopen season regulations, but required twomodifications.

The commission is requiring TC Alaskato immediately open its data rooms and isalso requiring some revisions in the plan tocomply with FERC’s standards of conduct.

Tony Palmer, president of TransCanadaAlaska, said TransCanada is “very pleasedthat FERC has approved our open seasonplan,” but said he couldn’t immediatelycomment on the requirement to open thedata rooms or on revisions to the standardsof conduct.

He told Petroleum News March 31 thathe was just leaving Houston after appearingon a panel and hadn’t had a chance to readthe order in detail.

The plan had been to open the datarooms effective May 1, he said.

Limited issuesOne thing which was strongly argued in

filings on the open season plan was whatissues the commission should consider inevaluating the plan.

FERC said TC Alaska described anevaluation of whether the open season pro-posal was “in conformance with the openseason rules,” rather than an examination ofsubstantive issues.

While ExxonMobil Gas & Power, theState of Alaska and Denali agreed, BPExploration told FERC that the open sea-son filing required a much more compre-hensive review.

FERC said it was not its “intent in estab-lishing the open season procedures to cre-ate a forum in which to pre-litigate issuesthat may arise during certificate and rateproceedings. Rather, the intent of the pre-open season review is to determine whetherpotential bidders will be treated in a non-discriminatory manner.” FERC said itagreed “with those parties who urge a rela-tively limited review of TC Alaska’s filing.”

FERC said it made clear in Order No.2005 that open season regulations for theAlaska project “represented an effort tobalance a project sponsor’s need for flexi-bility to design and finance a viable projectwith the ‘equally compelling needs toensure fair competition in the transporta-tion and sale of natural gas, promote thedevelopment of natural gas resources inaddition to those in the North Slope, andconsider Alaskan in-state requirements.’”

In an extensive discussion of the issuesraised by BP Exploration, FERC said it wasnot persuaded by BP’s “assertion thatunless the issues it raises regarding therates, terms, and conditions of service areresolved during the pre-approval process,the resulting economic uncertainty willrender prospective bidders either unable orunwilling to make informed bids. We willnot prescribe in our pre-approval processwhat we chose not to prescribe in the OpenSeason regulations themselves.”

FERC said it concluded “that our pre-approval of a prospective applicant’s planfor conducting an open season pursuant tothe Open Season regulations does not con-template a close examination of theprospective applicant’s costs and tariff.”

Data rooms need to be openBP also argued that timing

and substance of informationunder the open season plan wereinadequate.

The commission agreed onthe timing issue, saying that “it isclear, as BP Exploration con-tends, the Open Season regula-tions require that all the informa-tion filed … must be available to prospec-tive shippers at the time the … request forpre-approval is filed, whether the informa-tion be published in the notice or accessibleby way of a reading/data room.”

The commission said in its order that it“will require that TC Alaska immediatelyopen its data rooms to allow inspection ofdocuments and information,” but said itwould not require TC Alaska to change theApril 30 date it has set for the beginning ofits open season.

“Should TC Alaska promptly open thedata rooms, there will be no reason to alterthe proposed open season schedule. If,however, there is an undue delay in openingthe rooms and any party makes a showingthat it has been significantly disadvantagedas a result, we will consider requiring anappropriate delay in the commencementdate of the open season or extending itsclosing date.”

BP also argued that TC Alaska was notproviding enough information.

The commission said that once the datarooms are open, what BP described as “thevast majority of information withinTransCanada’s control” withheld to datewill be available to BP and other prospec-tive shippers.

On BP’s requests for addi-tional information on theCanadian portion of the lineand on the Dempster Later,FERC said it believed thoseissues had been adequatelyaddressed by TC Alaska inmid-March.

State concernsThe State of Alaska

expressed concerns about standards of con-duct. This is a firewall issue related toensuring that a project applicant conduct-ing an open season functions “independent-ly from any affiliated organizational unitsinvolved in the production of natural gas”in Alaska or marketing or selling naturalgas from Alaska so that affiliates do nothave unfair advantage in an open season.

TransCanada is not a gas producer ormarketer, but the standards are applied toExxonMobil, and compliance proceduresin the open season plan “spell outExxonMobil’s structural separation, as wellas the firewalls and standards of conductthat are in place,” the commission said.

The State of Alaska asked that FERCclarify the standards of conduct; the com-mission complied.

And, in response to a request from BGAlaska that the commission review closelythe details to the compliance procedures toensure they comply with FERC’s open sea-son regulations, FERC said TC Alaska nar-rowed the phrase marketing affiliates byadded those involved in marketing or saleof natural gas from Alaska. The commis-sion said that in order No. 2005 it intendedfor the standards of conduct “to apply to all

marketing affiliates during the open sea-son, not only those involved in marketingor sales of natural gas” from Alaska; it isrequiring TC Alaska to revise its compli-ance procedures to remove the languagenarrowing the scope of marketing affiliates.

FERC said that TC Alaska’s languagethat standards of conduct apply to produceraffiliates involved in Alaska is acceptable.

Alleged discriminatory provisionsThe commission also addressed provi-

sions which BP Exploration andConocoPhillips described as discrimina-tory.

Among those issues, BP said the pro-posed creditworthiness provisions werediscriminatory, citing a lack of standardsand unrestricted exercise of discretion bythe project sponsor. The commission saidit agreed the precedent agreement saysthe project sponsor would determinecreditworthiness, but said it does notbelieve that is discriminatory sinceExhibit B to the precedent agreement“provides clear criteria for determiningwhether a shipper is creditworthy.”

In response to BP’s assertion thatFERC should require TC Alaska to have ameans for shippers to include in their bidsvolumes of incremental firm capacity thatwill be available due to colder tempera-tures, FERC said that falls outside thescope of open season pre-approval asreflected in its treatment of a similarquestion related to the Alliance Pipeline.

ConocoPhillips raised concerns in itsinitial comments about the open season


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� N A T U R A L G A S

FERC approves TC Alaska open season planRequires immediate opening of data rooms, some revisions in standards of conduct; rejects BP arguments for extensive review

TONY PALMER

see FERC OK page 11

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� S A F E T Y & E N V I R O N M E N T

Pioneer finds no wrongdoing at OoogurukInternal investigation finds nothing, second investigation under way, AOGCC looking into allegations against itself and Pioneer

By ERIC LIDJIFor Petroleum News

A fter an internal investigation into its waste manage-ment activities, Pioneer Natural Resources has said

it could not substantiate allegations made against thecompany.

“Based on the investigation conducted, Pioneer doesnot believe that Mr. Kelley’s allegations regarding wastemanagement practices in general, regarding specificincidents, and regarding corporate culture are correct,”an attorney for Pioneer wrote to state and federal offi-cials. “Pioneer did not detect, and does not suspect, vio-lations of applicable law or regulation regarding the mat-ters addressed by Mr. Kelley.”

“Mr. Kelley” refers to Mike Kelley, a now-formeremployee of Pioneer who made several complaintsagainst the company, first anonymously and then in hisown name.

At least one state agency is planning an independentinvestigation, but that effort is complicated somewhat bythe broad nature of the allegations. Pioneer is also start-ing work on a second internal investigation to addressadditional allegations by Kelley.

The allegations mostly concern Pioneer’s Ooogurukunit, a nearshore project in the waters of Harrison Bay,north of Kuparuk, off the coast of the North Slope ofAlaska.

Anonymous claims at firstThe allegations began with a confidential complaint

to the BP ombudsman. While BP Exploration (Alaska)does not have any authority over Oooguruk, the ombuds-man noted in a Feb. 18 letter to President John Minge “itis clear as a good corporate citizen that BPXA shouldforward the information to the appropriate federal andstate authorities.”

BP sent the allegations to Pioneer, as well as to the

U.S. Environmental Protection Agency, the AlaskaDepartment of Environmental Conservation and theAlaska Oil and Gas Conservation Commission. Pioneerbegan an internal investigation in late February.

Those allegations primarily concern Pioneer’s man-agement of waste at Oooguruk Island, the six-acre, man-made drilling site located six miles offshore, and knownas the ODS.

One allegation claims Pioneer put waste generated atthe ODS into the production stream as a form of “shamrecycling.” The company said its investigation showed nosign of this.

In its final report, Pioneer said the allegations were“difficult if not impossible to comprehensively address,”and so instead the company looked at its operating pro-cedures to see if waste management practices on theground complied with guidelines.

“Pioneer’s investigation did not detect any regulatorynon-compliance associated with the configuration orproscribed usage of these facilities and processes,” thereport said.

Second investigation under wayThe report to the AOGCC is the result of that investi-

gation, but not the end of the matter.Pioneer said that on Feb. 22, an employee named

Mike Kelley e-mailed the company about additional alle-gations concerning the pigging of a seawater injectionline. It was ultimately revealed that Kelley also sent theinitial allegations to the BP ombudsman.

Pioneer “does not believe that there is any merit” tothe pigging allegation.

Kelley also complained about a corporate culture of“shoot the messenger.” Pioneer said Kelley “freely andfrequently spoke out when he had concerns regardingoperations procedures, safety issues and other matters,both while employed by Pioneer and since resigning,”adding “the problem was not with his ability or willing-

ness to raise issues, but with his disappointment and dis-agreement with how his concerns were resolved.”

The company said Kelley “was employed by Pioneerin the position of Multi-Skilled Tech II from March 18,2009, until his voluntary resignation on March 2, 2010,”and previously worked at Oooguruk as a contractemployee of NANA Management Services.

On March 8, Kelly e-mailed Pioneer a 140-page doc-ument called “Alaska’s ‘Deadliest Sin,’” includingthoughts about the Alaska oil industry, and Oooguruk inparticular.

The document includes narrative, accusations andphotographs claiming to prove oil industry malfeasanceon the North Slope. Pioneer included the document in itsreport to the AOGCC, but in the copy obtained byPetroleum News, the relevant content of the reproducedblack and white photographs are in many cases difficultto render.

Because of the timing, the recently completed internalinvestigation does not cover the allegations Kelley madein “Alaska’s ‘Deadliest Sin.’” The company attorney saidPioneer is “working diligently to investigate the newallegations,” but because of the length, added he is “hes-itant to state when Pioneer will complete its investiga-tion.”

AOGCC investigation underwayThe AOGCC is beginning its own investigation as a

result of the allegations.“Anytime something like that comes across our desk,

we automatically trigger our own investigation,”Commissioner Cathy Foerster told Petroleum News onMarch 29.

The size and scope of the allegations create compli-cations, though. Not only do its accusations fall underAOGCC jurisdiction, but they also point fingers at the

see INVESTIGATION page 14

http://www.ccialaska.com/

By KAY CASHMANPetroleum News

The headline of the March 29 press release about theCalifornia-based company read, “Alaska Pacific

Energy Corp. Signs Oil Sands Recovery License.” Huh?Say what? Has Pacific Energy moved east to dabble inCanada’s oil sands?

That was this writer’s reaction, concluding that AlaskaPacific was somehow affiliated with another Californiafirm, Pacific Energy, which filed for bankruptcy protec-tion in 2009 and sold its Alaska assets after what seemedlike a valiant but problematic effort to produce oil and gasin the Cook Inlet basin.

As it turns out, there is no connection between the twocompanies and although Alaska Pacific has no leases inAlaska, when the company was incorporated in 2005 itwas with the intention of exploring for minerals and/or oiland natural gas in, among other places, Alaska.

Alaska Pacific President James R. King toldPetroleum News March 30 that the company initially

“purchased claims in the province of Quebec that haveinteresting molybdenum showings,” raising US$125,000from “seed stock shareholders.”

King said he has “been a successful entrepreneur formany years, having drilled for oil and gas in Utah andMontana.”

He also noted that he has “access to pools of develop-ment capital.” When asked if the right opportunity pre-sented itself in Alaska, was his company still interested inthe state, King said yes: “We will look at most any decentlooking prospect, be they mineral or oil and gas. With thenew relationship we have with Entec, we as a companynow have a very experienced group of oil and gas expertson our team and I will coordinate with them. I also have

access to very good mineral geologists and engineers.”Calgary-based Entec, at www.entecinc.com, has been

in business for 25 years. According to the March 29 pressrelease, its accomplishments include: leading the way indeveloping unique wellbore configurations for numerousspecialty applications; providing horizontal drilling serv-ices since its inception; having been responsible for, orassisted with, several major horizontal drilling achieve-ments; and in May 2009, providing “the primary engi-neering and construction management for a TransCanadapipeline project that saw a Canadian record 42-inchpipeline successfully drilled under the Peace River inAlberta.”

To read more about the oil sands technology dealbetween Alaska Pacific and Entec, go tohttp://bit.ly/9CpYL4.

According to King, other officers in Alaska Pacificinclude Treasurer Anastasios Koutsoumbos and directorsGeorge Skrivanos and Timothea Welsh. �


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UTS Energy clings to Fort Hills hopeBy GARY PARK

For Petroleum News

Having preened itself to deliver on its biggest dream,oil sands minnow UTS Energy is not about to give

up hope that its operating partner Suncor Energy will goahead with the stalled Fort Hills project.

Despite the added doubts stemming from Suncor’stakeover of Petro-Canada, which included the Fort Hillsleases and Suncor’s reluctance to say if or when the proj-ect might go ahead, UTS has its own schedule in mind.

Chief Executive Officer Will Roach told a conferencecall that a 2016 startup is possible, although that datecould be stretched to 2019, the last available target daterequired to preserve the current leases.

Roach said the Suncor deal with Petro-Canada was“pretty clearly a big” event, but said he is confident theSuncor leaders will see value in monetizing the FortHills partnership.

UTS has a 20 percent stake in Fort Hills, while Suncorhas 60 percent and Canadian mining giant TeckResources holds the remaining 20 percent. Teck is also ajoint 50-50 partner with UTS in the undeveloped

Equinox and Frontier leases, where they are gatheringadditional data to support a planned regulatory applica-tion in early 2011 for Frontier, with Equinox as a satel-lite, with approvals expected in 2014.

Partnership decision requiredUTS Vice President Howard Lutley said his company

is basing its goal on discussions with Suncor, butstressed: “This is UTS’s schedule. We have shared it withSuncor, but this is our view.”

He said that meeting the startup schedule requires apartnership decision to proceed with a design basismemorandum update by the end of 2010, followed in2011 by an updated front-end engineering and design,which requires the partners to make commitments andstart spending significant dollars.

Lutley said the near-term push is to reconfigure theFort Hills plans to take advantage of synergies with theexisting Suncor facilities.

He noted that Suncor is also expected to complete areview of its oil sands assets this year, which should addto clarity around Fort Hills.

He said Suncor has emphasized that, as much as pos-

sible, it wants to preserve the engineering completedunder Petro-Canada to “minimize the rework and retainvalue” from what has been spent.

UTS viewed as takeover targetUTS sold a 50 percent working interest in three leas-

es late last year to Imperial Oil and ExxonMobil forC$250 million, giving it an estimated C$440 million incash and cash equivalents, plus C$704 million in remain-ing earn-in on Fort Hills.

UTS is also rated as a prime target for takeover byAsian buyers.

National Bank Financial analyst Peter Ogden saidUTS’s project slate is at least as good as Athabasca OilSands, which is gearing up for an initial public offering,and it has strong partners in Suncor and Teck.

He estimated UTS’s value at C$3.30 a share, or 71cents per barrel of contingent resources, translating to atakeout price of about C$1.57 billion, compared with itscurrent market value of C$1.18 billion. �



Alaska Pacific Energy still interestedNot related to Pacific Energy which filed for bankruptcy, sold Alaska assets; has had Alaska on its radar since its 2005 founding

When asked if the right opportunity presenteditself in Alaska, was his company still

interested in the state, King said yes: “We willlook at most any decent looking prospect, be

they mineral or oil and gas.”

Contact Kay Cashman at [email protected]

process, including when bidderswould be notified of open seasonresults and notification of rejectedbids. TC Alaska said in reply com-ments that it had been its intent toact as ConocoPhillips suggested, andclarified its proposed open seasonnotice correspondingly.

In response to ConocoPhillips’assertion that the methodology forawarding capacity in case of over sub-scription required revision, TC Alaskasaid in reply comments that it believedits provisions provided bidders anopportunity to decline capacity if thecapacity bid for was reduced on a pro-rata basis, and said it had no objectionto making the bidder’s opportunity todecline prorated capacity moreexplicit and revised its proposed openseason notice accordingly. �


FERC OK

Contact Kristen Nelson at [email protected]

http://www.cruzconstruct.com/


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

Pioneer preps for CosmopolitanwaterfloodAlthough independent hasn’t yet sanctioned oil field developmentin Alaska’s Cook Inlet, it wants to lay the regulatory groundwork


P ioneer Natural Resources hasn’tsaid yet exactly what it aims to do

with its offshore Cosmopolitan unit inAlaska’s lower Cook Inlet, but the com-pany is sending some strong clues wejust might see a new oil development.

On March 26 the U.S. Army Corps ofEngineers put out a public notice thatPioneer had applied for a permit toinstall a system for withdrawing seawa-ter from the inlet.

“The applicant’s stated purpose is toprovide a water source for subsurfaceinjection to maintain oil reservoir pres-sure and enhance recovery,” the Corpsnotice says.

The drill site for Cosmopolitan sitsatop the east bank of Cook Inlet, aboutsix miles north of the Anchor Pointcommunity.

Pioneer proposes to install a waterintake structure 2,300 feet offshore, theCorps notice says. The intake wouldhave a screen to prevent entrainment andentrapment of fish.

A 3,400-foot, 12-inch water linewould be directionally drilled under theinlet to connect to the intake, whichwould have a daily water draw capacityof 420,000 gallons.

Pioneer plans to install the intake andwater line between July 4 and Sept. 15,the Corps notice says.

Project not yet sanctionedPennzoil drilled into the oil accumu-

lation at Cosmopolitan in 1967, but thediscovery didn’t pan out for develop-ment.

In 2001, ConocoPhillips formed theCosmopolitan unit, which takes in stateand federal leases, and the companydrilled what’s known as the Hansen wellplus a sidetrack from the onshore drillsite.

Pioneer took over the unit in 2006and the next year drilled a lateralappraisal well, the Hansen 1A-L1, withRowan rig 68. The well tested at a rateof 400 to 500 barrels per day, the com-pany has said.

A steep decline in oil prices prompt-ed Pioneer to shelve the Cosmopolitanproject for a time, but in recent monthswork resumed and Pioneer re-enteredthe Hansen 1A-L1.

The company is continuing to evalu-ate data, Pioneer’s Alaska spokesman,Tadd Owens, told Petroleum News onMarch 31.

The application filed with the ArmyCorps for the water intake is just a pieceof the regulatory groundwork Pioneerwould like to complete in advance incase Cosmopolitan gets the green lightfor development, Owens said.

“We haven’t actually sanctioned theproject,” he said.

The water intake, Owens said, is for astandard waterflood program to main-tain field pressure and boost oil recov-ery.

Up to 50 million barrelsPioneer has said Cosmopolitan could

contain 30 million to 50 million barrelsof oil.

A development most likely wouldinvolve using trucks to haul the crudeabout 60 miles north to the Tesoro refin-ery at Nikiski.

In November, the Alaska Division ofOil and Gas approved changes toPioneer’s fourth plan of exploration forthe Cosmopolitan unit. As part of thatapproval, Pioneer committed to worktoward an additional appraisal well withdrilling to start by the end of April 2012.

Pioneer is a large independent explo-ration and production company based inIrving, Texas, with operations in theLower 48 states, Tunisia and SouthAfrica.

It operates the small Oooguruk fieldin the shallow waters of the BeaufortSea off Alaska’s North Slope. �

“We haven’t actually sanctionedthe project.” —Tadd Owens, Pioneer’s

Alaska spokesman


GOVERNMENTDEC to monitor Chukchi water quality

The Alaska Department of Environmental Conservation will receive $2.25 mil-lion in federal revenue sharing to monitor water quality off northwest Alaska.

The Minerals Management Service grant comes from its Coastal ImpactAssessment Program.

The grant will be used to expand the Alaska Monitoring and AssessmentProgram, now in Southcentral and southeast Alaska waters, to part of the ChukchiSea. The coastline from Point Hope to Point Barrow will be studied.

U.S. Sen. Lisa Murkowski announced the grant and said it’s essential to updateinformation about coastal areas to make sound policy decisions.

This project uses water-sampling techniques to estimate and monitor waterquality.

—THE ASSOCIATED PRESS

http://www.peakalaska.com/



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House bill to reduce ACES tax tabledSenate proposal to decouple progressivity on oil and gas moves out of Finance; companion bill has been heard in House Resources


House Bill 308, an attempt to reducethe progressivity rate in Alaska’s Fair

and Equitable Share, or ACES, was tabledin House Resources March 26, victim of afiscal note which indicated that over timethe change could cost the state more than $2billion in reduced revenue.

In the Senate, however, changes toSenate Bill 305, which decouples oil andgas for progressivity calculations in ACES,won committee approval March 31 in theFinance Committee and moved to theSenate floor after a revision in the billresulted in a zero impact fiscal note, pre-pared by Senate Finance.

The goal of HB 308, sponsored byHouse Resources Co-Chair Craig Johnson,R-Anchorage, was to provide an incentivefor additional investment by reducing theproduction tax burden.

The Department of Revenue had no wayof calculating the results of an unknownamount of additional investment, and didnot provide a dollar estimate for the changein revenues in its fiscal note.

In its analysis, the department said thebill would retain the progressivity rates inthe existing tax, but would change the baseupon which the surcharge is applied.Currently the progressivity surcharge isapplied to the entire production tax value.The bill would apply the progressivity sur-charge only to the amount of the productiontax value that exceeded the progressivitytrigger of $30 profit per barrel.

Revenue said that had this provisionbeen in place in fiscal year 2008, state rev-enues would have been reduced by morethan $1 billion, or 15 percent of the tax rev-enue collected; in FY 2009, state revenueswould have been reduced by $400 million,close to 13 percent.

Trigger loss in revenueBased on 2009 fall forecasted numbers,

if the provision had been in place for all ofFY 2010 the state would have received$300 million less in production tax revenue,about 14 percent. The department said thatwith oil price increases forecast for lateryears, revenue productions are estimated at$400 million for FY 2011 and up to $622million in FY 2015.

Referring to the Revenue numbers, Rep.Paul Seaton, R-Homer, said the loss in rev-enues under the bill’s provisions would havebeen $1.7 billion-plus in the most recent

three fiscal years, without considering theimpact of additional credits, which wouldincrease that amount to more than $2 billionin revenue reduction.

Seaton said legislators haven’t identifiedwhat they would be willing to cut out of thebudget, and although Johnson pointed outthat it would just be a reduction in the state’scurrent surplus, Seaton said the Legislaturehas just repaid the constitutional budgetreserve and he wanted to look further at theeconomic impact of the bill.

Johnson said the Finance Committee,the bill’s next destination, would allow that,as would the House floor, but Seaton wasnot persuaded and moved to table the bill.He was joined in voting to table by the com-mittee’s four Democrats, one of whom cau-cuses with the Republicans, producing avote to table of 5 to 4.

Senate Finance moves billSenate Finance moved Senate Bill 305

out of committee without objections March31; the bill passed the Senate 16 to 3 April1 and 15 to 3 on reconsideration the sameday and now moves to the House.

The committee substitute adoptedMarch 31 included progressivity for gas andincluded a Senate Finance zero fiscal notewith an analysis summing up what SenateFinance Co-Chair Bert Stedman, R-Sitka,and consultant Roger Marks have saidabout the bill.

Earlier versions of the bill took naturalgas out of the progressivity calculation,because as the fiscal note analysis states, thecurrent tax rate is based on the combinedBtu value of oil and gas and a Btu of oil iscurrently worth much more than a Btu ofgas.

When the Department of Revenue mod-eled what would happen if the value of gasin relation to oil dropped back to more tra-ditional levels, 8 or 10 to 1, it was evidentthe state could lose revenue without naturalgas in the progressivity calculation.

Gas progressivity was included in thecommittee substitute as a separate calcula-tion.

Stedman has been pushing to get a billthrough this session because provisions ofthe Alaska Gasline Inducement Act lock thetax structure in place at the time of the firstbinding open season, which is expected tobegin May 1. Because of the AGIA provi-sions, the analysis says, “to the extent thereis interest in decoupling our tax structure, itneeds to be done before April 30, 2010.”

A House version of the bill was heard in

House Resources March 31, with Markswalking the committee through the provi-sions.

Separate progressivityUnder this version of the bill, progres-

sivity for oil and progressivity for gas wouldbe calculated separately. As Marksexplained in Senate Finance, progressivityfor gas goes into two buckets: the first rep-resents current activity in the state; the sec-ond bucket represents activity with a majorgas sale.

He said it was not the intent of the bill tomake tax changes on current activity but tokeep the bill revenue neutral. The previousversion dealt with this with a credit for dif-ferences in calculation before and after thechange proposed in the bill, but that wouldbe administratively cumbersome to figureout every month.

The solution, he said, was two bucketsfor progressivity. As a result, no currentactivity would see a tax increase and gasfrom a major sale would not dilute oil pro-gressivity.

“Some producers currently produceCook Inlet gas or other in-state gas along

with North Slope oil,” the fiscal note analy-sis says. “If all gas were separated from oilthese producers would see an immediate taxincrease. The bill is not intended to increasetaxes on current activity. Having the pro-gressivity for Cook Inlet gas and other in-state gas calculated together replicates thecurrent situation, so these producers willsee no tax increases. Only progressivity onexport gas, like the gas from a major gassale, would be calculated distinctly. Thiswill prevent a major gas sale from dilutingprogressivity on oil.”

The fiscal note analysis also says the billgives the Department of Revenue authorityto adopt regulations to allocate costsbetween oil and gas, and says that a methodbased on the relative Btu barrel of oil equiv-alents should be considered. Revenue haddescribed a number of possible methods ofallocating costs to the committee, and askedfor direction from the Legislature as to themethod.

The fiscal note analysis says the Btuequivalent basis was adopted by Revenuefor implementation of the current law. �

NATURAL GASFairbanks utility to buy North Slope LNG

A Fairbanks electric utility has agreed to buy the natural gas that is expected tobe trucked into the city by 2012.

The policy board of the Golden Valley Electric Association on March 29approved a 15-year contract with the Alaska Gasline Port Authority — a partner-ship of municipalities taking out $250 million in loans to buy Fairbanks NaturalGas, build gas processing plants and truck natural gas down from the North Slope.

The contract is valued at $12 million to $15 million per year, and the portauthority will provide about 10 percent of the utility’s fuel.

Officials who worked on the deal said natural gas customers eventually couldsee their electric bills cut by 30 percent because of increased supply. Roughly1,100 homes and businesses in Fairbanks are hooked up to natural gas and the util-ity is primed to expand into more neighborhoods.

The nonprofit utility hired an independent consultant from Maine to evaluatethe port authority’s plan, and its board met privately with officials from a NorthPole refinery before approving the gas contract.

“This is going to be good for our members and good for the Interior,” said BillNordmark, chairman of Golden Valley’s board.

About 30 people attended the meeting and all who testified asked GoldenValley to OK the contract. One of them was Lisa Gambardella, a restaurateur.

“Maybe we are going to miss an opportunity with a better prom date,” she said,referring to a possible natural gas pipeline. “But maybe we should take a swing onthe dance floor with this one.”

The plan still needs approval from the Regulatory Commission of Alaska.—THE ASSOCIATED PRESS


http://www.univarusa.com/

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tors have expressed a desire to create a bet-ter environment for investment in Alaska… AOGA members believe that passageof SB 4 would achieve the exact opposite.”

She said SB 4 would “significantlyreduce potential production and could costthe state significant revenue, billions ofdollars in needed industry investment andconsequently thousands of jobs.”

Pete Slaiby, vice president of Shell

Alaska, told the committee that stakehold-er consultations are important to Shell andsaid Shell opposes SB 4 because itbelieves existing legislation at the stateand federal level gives stakeholders theopportunity to comment.

In a March 29 letter to the sponsors ofthe legislation, Slaiby said that key ele-ments of the bills “threaten future invest-ment in offshore oil and gas exploration,”and said those include removal of theDepartment of EnvironmentalConservation “carve out,” which wouldopen “extremely technical federal andstate air and water permits to contradicto-ry local standards, unnecessarily restric-tive requirements, costly last-minute mod-ifications and extended approval time-lines.”

The deferral of consistency reviewsuntil all federal and state permits andauthorizations are in hand “eliminates allestablished timelines, which will result inthe loss of the short exploration season.”

The end result of key elements of thechanges, he said, “effectively establishes alocal veto over development of theresources that belong to all the people ofAlaska and the Nation.” �


AOGCC.The AOGCC is therefore investigating

itself through an independent investiga-tor.

Foerster said the AOGCC asked stateprocurement officials to fast track the

process, but noted “the wheels of stategovernment move a little bit more slowlythan industry,” and said there would prob-ably not be a strict timeline put in placefor the investigation. “Once he gets start-ed we’re going to give him or her all thetime he or she needs,” she said. �


ACMP


INVESTIGATION

Contact Eric Lidji at [email protected]


Interior will expand the opportunities foroffshore oil and gas exploration while alsobalancing energy development with envi-ronmental protection, he said.

Support for explorationOne immediate upshot of this policy

position is continuing support for oil andgas exploration in federal oil and gas leasesalready issued on the outer continental shelfof the Chukchi and Beaufort seas, with thatsupport perhaps already flagged by the U.S.Minerals Management Service’s relatively

recent approval Shell’s plans for 2010exploratory drilling in both of these seas.

And, within its 2007-12 OCS lease saleprogram, MMS will go ahead with aplanned lease sale on the federal OCS inAlaska’s Cook Inlet, as well as schedulingnew lease sales in the eastern Gulf ofMexico and off the coast of Virginia. Inaddition, the Department of the Interiorplans to include the Gulf of Mexico, muchof the Atlantic OCS, the Chukchi Sea andthe Beaufort Sea within the potential scopeof the next OCS lease sale program, slatedfor 2012-17.

On the other hand, DOI has removed theremaining planned Chukchi Sea andBeaufort Sea lease sales from the 2007-12

lease sale program, citing the need for timefor more scientific research into environ-mental and oil spill response issues prior toembarking on another round of leasing inthese areas. The president has withdrawnthe Bristol Bay area from future oil and gasleasing, and MMS will not include theCalifornia OCS within the scope of leasesale programs in the foreseeable future.

Scientific basisObama said that the lease sale program

proposals reflect a reliance on scientific evi-dence rather than political ideology in thebalance between energy development needsand environmental protection.

“That’s why my administration will con-sider potential areas for development in themid- and south-Atlantic and the Gulf ofMexico, while studying and protecting sen-sitive areas in the Arctic,” Obama said.“That’s why we’ll continue to support devel-opment of leased areas off the North Slopeof Alaska while protecting Alaska’s BristolBay.”

“By responsibly expanding conventionalenergy development and exploration here athome we can strengthen our energy securi-ty, create jobs and help rebuild our econo-my,” said Salazar. “Our strategy calls fordeveloping new areas offshore, exploringfrontier areas and protecting places that aretoo special to drill. By providing order andcertainty to offshore exploration and devel-opment and ensuring we are drilling in theright ways and the right places, we are open-ing a new chapter for balanced and respon-sible oil and gas development here athome.”

However, Interior will gather scientificinformation, conduct environmentalreviews and hold public meetings beforedeciding on exactly which OCS areas toeventually include in the upcoming 2012-17lease sale program.

“The scoping process for the 2012-2017

program will provide opportunities to hearfrom local communities who depend ontourism, tribes whose livelihoods depend onthe sea and scientists who can tell us wherethe risks of development are simply toogreat and which areas are just too sensitiveto drill,” Salazar said.

Itta relievedMayor Edward Itta of the North Slope

Borough, whose call of “too much, toosoon, too fast” in response to Shell’s initialfast-track approach to OCS exploration hasfor several years summed up some of theconcerns of North Slope communities,expressed a sense of relief at the deferral offurther Chukchi Sea and Beaufort Sea leasesales to at least 2012.

“I’m sensitive to our need as a state todevelop our resources and I’m concernedthat we get it right,” Itta said in a March 31statement. “When Interior Secretary Salazarcame to Alaska last year, he talked about theimportance of balancing energy explorationand community concerns in the ArcticOcean. When I met with him a month agoin Washington, we talked again about find-ing this balance. I think today’s announce-ment achieves that goal by allowing explo-ration of existing leases and also creatingwhat amounts to a pause in new leasinguntil we have a better understanding of theimpacts and the appropriate standards to usein that fragile habitat.”

But environmental organizations are agood deal less supportive of the Obamaadministration’s newly stated position.

Pacific Environmental, for example,accused the administration of double stan-dards, saying that the administration’sactions do not match Secretary Salazar’sstatements about now being the time formajor changes in U.S. energy policy.

“While postponing some lease sales in

GOVERNMENTEPA issues Shell’s Chukchi Sea air permit

On March 31 the U.S. Environmental Protection Agency issued an air qualitypermit for Shell’s planned exploratory drilling in the Chukchi Sea, offshore north-ern Alaska. The issuance of the permit, a key regulatory step for governmentapproval of Shell’s planned Chukchi Sea activities, came some six weeks after theFeb. 17 end of the permit’s public comment period.

EPA said that it had carefully considered numerous written and oral commentsduring the public comment period before deciding to issue the permit.

Shell plans to drill up to three exploration wells in the Chukchi Sea in 2010,and the company applied for a major prevention of significant deterioration airquality permit, rather than a minor permit, for the drilling. Shell is still waiting foran EPA decision on a similar proposed air quality permit for the company’s pro-posed 2010 Beaufort Sea drilling — the public comment period for that permitended on March 22.

“The issuance of our final Chukchi Sea air permit on the heels of yesterday’sannouncement that Shell will continue to have access to offshore acreage pur-chased in (Chukchi Sea) lease sale 193 is excellent news,” Shell spokesman CurtisSmith said April 1. “It’s our hope the final Beaufort Sea air permit will soon fol-low so that we can continue to move forward with our 2010 drilling program.While today’s news is very encouraging, we still have work to do to achieve ourgoal of drilling in 2010, including the resolution of pending and potential legalchallenges.”

—ALAN BAILEY


OCS DECISION

see OCS DECISION page 15

http://www.tomco.ca

the Arctic is a step in the right direction,allowing high-risk drilling plans and theillegal transfer of millions of acres of publicresources to stand is an affront to ecologicalcommon sense in a rapidly melting Arcticand an insult to the traditional subsistencecommunities of Alaska,” said CaroleHolley, Pacific Environmental’s Alaska pro-gram director.

“We look forward to working with theDepartment of Interior to ensure that theInupiat people’s subsistence way of life isprotected and that no drilling will occuruntil proven technology exists to clean upoil spills in the Arctic’s harsh and icy condi-tions,” said Cindy Shogan, executive direc-tor of the Alaska Wilderness League. “…For the same reasons that it makes sense forObama and Salazar to commit to sound sci-ence in the Arctic before any potential newleasing, as they appear ready to do today, webelieve it makes sense to hold off drilling onthese Chukchi leases. We will rely on ourexisting litigation for that result.”

Point Hope oppositionAnd the Native tribe for the Chukchi Sea

coastal village of Point Hope expressed itscontinued opposition to Chukchi Sea oiland gas development.

“The proposed oil and gas activitiesaffect the very foundations of who we are asindividuals and as a people” said CarolineCannon, president of the Native Village ofPoint Hope. “We have a right to life, tophysical integrity, to security and the right toenjoy the benefits of our culture. … Theindustry should not have greater rights thanwe do just because they worked with theBush administration to manipulate theprocess and paid money for leases in theChukchi Sea.”

But Rep. Don Young, Alaska’s solemember in the U.S. House ofRepresentatives, expressed a diametricallydifferent perspective, slamming the Obamaadministration’s unwillingness to moveahead rapidly with oil and gas leasing inareas such as the California OCS.

“While I appreciate the president’s seem-ing departure from his extreme environ-mental left supporters, all I’m seeing in thisexploration ‘plan’ is smoke and mirrors,”Young said. “The president is saying all ofthe right things but actions speak muchlouder than words, and this new ‘plan’ is justa continuation of this administration’s inac-tion on making the United States energyindependent. … This plan closes more thanit opens, and is a complete farce. There is noquestion that this ‘Obama moratorium’ willhave dire impacts on the economic future ofour country.”

Alaska’s two U.S. senators were moresupportive in their comments.

“I appreciate the department’s decisionto allow valid existing rights to exploreAlaska’s huge offshore oil and gas reservesto go ahead,” said Sen. Lisa Murkowski. “Iwill work with the administration on pro-ceeding with important future lease sales offAlaska’s coast, as well as along the Atlanticcoast and the eastern Gulf of Mexico.”

“Alaska’s energy companies should bepleased with the green light from theObama administration to proceed towardsoil and gas development in the Chukchi andBeaufort Seas under the current leaseschedule,” said Sen. Mark Begich. “As thesite of the world’s largest salmon fishery, thepresident’s proposal to curtail oil and gasdevelopment in Bristol Bay makes sense. Icommend the Obama administration, andespecially Interior Secretary Ken Salazar,for reaching out to Alaskans and incorporat-ing our recommendations in today’s deci-sion.”

Gov. Sean Parnell expressed concern

about how the Obama administration’s strat-egy might work out in Alaska.

“Although the plan calls for expandedleasing in the Lower 48 offshore areas,uncertainty remains about the future ofOCS leasing in Alaska, particularly in theChukchi and Beaufort Seas during the2012-17 leasing period,” Parnell said. “Fewareas of the United States possess the poten-tial of Alaska’s northern OCS areas: an esti-mated 25 billion barrels of oil and 120 tril-lion cubic feet of natural gas.”

Shell appreciates supportShell, the company that has been spear-

heading industry efforts to open theBeaufort and Chukchi Seas for oil and gasdevelopment, expressed its appreciation forthe administration’s support for the compa-ny’s OCS drilling plans. The Obama admin-istration’s continuing effort to deal with thenation’s energy situation acknowledges thatoil and gas needs to play an important rolealong with other energy sources, PeterSlaiby, Shell’s Alaska general manager, toldPetroleum News March 31.

“It’s a good day for us. … We’ve got a lotinvested in this,” Slaiby said, referring to theyears of effort and massive financial invest-ment that Shell has already plowed into itsAlaska OCS venture.

On the one hand it is important to moveforward with offshore drilling, to find anddevelop commercial quantities of hydrocar-bons, while on the other hand baseline envi-ronmental studies will continue, augment-ing the hundreds of millions of dollars thatgovernment and industry have already spentgaining a better understanding of the ArcticOCS, he said.

“The other thing is we’re going to have togo out there and deliver now and we’regoing to have to deliver a program that’s

really going to get people confident that wecan have this type of opportunity and thatwe can deliver safely as we’ve done in thepast,” Slaiby said. “… We’re confidentwe’re going to go out there and do the rightthing.”

ConocoPhillips, another major ChukchiSea leaseholder, has placed the Chukchi Seaat the top of its Alaska exploration prioritylist.

“Our understanding is that the presi-dent’s announcement means explorationand development of existing Chukchi leasescan proceed,” ConocoPhillips spokesmanCharlie Rowton told Petroleum News April1. “ConocoPhillips along with otherChukchi Sea leaseholders has also investedtens of millions of dollars on pre-drill andenvironmental studies, working with uni-versities, research institutions and localstakeholders on a multi-year program col-lecting biological, oceanographic and airquality data in the Chukchi Sea. We are tak-ing a measured and responsible approach toprepare for our initial exploration well in theChukchi Sea, which is now planned for

summer of 2012.”

Remaining uncertaintyBut the March 31 announcement by

President Obama and Secretary Salazardoes not entirely remove the uncertaintysurrounding the Chukchi Sea leases inwhich Shell and ConocoPhillips plan todrill. In April 2009 the United States Courtof Appeals for the District of Columbiaupheld an appeal against the MMS 2007-12lease sale program that included the 2008Chukchi Sea lease sale in which Shell andConocoPhillips purchased their leases. Thecourt subsequently required MMS torework its environmental analysis for theAlaska OCS.

MMS has now completed that environ-mental rework and, in parallel with theMarch 31 OCS lease sale strategyannouncement, the Department of theInterior filed with the D.C. court a revisedversion of the lease sale program, affirmingthe 2008 Chukchi Sea lease sale. Therevised program now needs to go through a30-day public review period before a finalDOI decision on the program, at whichpoint the agency will presumably ask theD.C. court to reconsider its 2009 ruling.

There is also a separate appeal in the U.S.District Court for the District of Alaskaagainst the 2008 Chukchi Sea lease sale andthe judge in that case has yet to hear oralarguments. And in the U.S. Court ofAppeals for the 9th Circuit the NativeVillage of Point Hope and several environ-mental organizations have appealed theMMS approval of Shell’s Chukchi Seaexploration plan for 2010, while in the samecourt environmental organizations haveappealed the approval of Shell’s BeaufortSea exploration plan.

And Shell has been waiting for someremaining government approvals that itneeds before deploying its drilling fleet forthe 2010 open water season. On April 1 theU.S. Environmental Protection Agencyissued the air quality permit for Shell’sChukchi Sea drilling but the company stillneeds the air quality permit for its BeaufortSea operation.

The company has been working towardmobilizing for its planned 2010 drilling,while keeping an eye on some milestonedates for mobilization, Slaiby said.

“As it sits right now we are planning onmobilizing for 2010,” he said. �


to an April 2009 court ruling that theassessment of environmental sensitivitiesin the original program was inadequate.

And the new program underpins sev-eral components of the Obama adminis-tration’s newly announced strategy forOCS leasing.

The revised lease sale program con-tains a substantially altered assessment ofthe environmental sensitivity and marineproductivity of the lease sale areas. Andsome key points relating to Alaska in therevised program are:

• A finding that although the Gulf ofMexico is the primary OCS area for thedevelopment of new U.S. oil and gasresources, exploration in frontier areassuch as the Arctic OCS is needed to meetU.S. oil and gas demand. Consequently,exploration should proceed in leasesissued in the 2008 Chukchi Sea leasesale. This Chukchi Sea exploration,together with planned exploration inexisting Beaufort Sea OCS leases, willprovide valuable data to inform decisionmaking for future Arctic activities.

• A finding that industry already holdsmany leases for oil and gas exploration inthe Chukchi and Beaufort seas. So, withthese areas especially susceptible to theeffects of climate change and with stud-ies in progress into how to respond morequickly to offshore oil spills, further leasesales in these areas should be removedfrom the 2007-12 lease sale program,thus allowing time for an informed deci-sion regarding the potential inclusion ofthese areas in the upcoming 2012-17 pro-gram.

• The removal of the North Aleutianbasin (Bristol Bay) area from the leasesale program, primarily because ofimportant fisheries in the area and alsobecause of the proximity of severalnational monuments and preserves(President Obama also issued a March 31memorandum formally withdrawing theBristol Bay area from any future oil andgas leasing).

The preliminary revised 2007-12OCS lease sale program will now gothrough a 30-day public review periodbefore DOI makes a final decision on theprogram and submits its final version ofthe program to the court.

—ALAN BAILEY


OCS DECISION continued from page 1

CHANGES

Contact Alan Bailey at [email protected]

http://www.lcmf.com/


Oil Patch Bits

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

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

AACB SolutionsAcuren USAAECOM EnvironmentAir LiquideAlaska Air CargoAlaska Analytical Laboratory . . . . . . . . . . . . . . . . . . . . . . . . .7Alaska AnvilAlaska Computer BrokersAlaska CoverallAlaska Division of Oil and Gas . . . . . . . . . . . . . . . . . . . . . . .5Alaska DreamsAlaska Frontier ConstructorsAlaska Interstate Construction (AIC) . . . . . . . . . . . . . . . . . .19Alaska Marine LinesAlaska Railroad Corp.Alaska Rubber & Supply Alaska Sales & ServiceAlaska Steel Co.Alaska TelecomAlaska Tent & TarpAlaska TextilesAlaska West ExpressAlliance, TheAlta Air LogisticsAmercable Inc.American Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Arctic ControlsArctic FoundationsArctic Slope Telephone Assoc. Co-op.Arctic Wire Rope & SupplyASRC Energy ServicesAvalon Development

B-FBadger ProductionsBald Mountain Air ServiceBrooks Range SupplyBuilders Choice Inc.Calista Corp.Canadian Mat Systems (Alaska)Canrig Drilling Technologies . . . . . . . . . . . . . . . . . . . . . . . .19Carlile Transportation ServicesCCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10CGGVeritas U.S. LandCH2M HILLChiulista Camp ServicesColvilleConocoPhillips Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Construction Machinery IndustrialCosco Fire ProtectionCrowley AlaskaCruz Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Delta LeasingDelta P Pump and EquipmentDenali IndustrialDepartment of Labor & Workforce Development

Dowland-Bach Corp.Doyon DrillingDoyon LTDDoyon Universal ServicesEEIS Consulting EngineersEgli Air HaulEngineered Fire and SafetyEra AlaskaERA HelicoptersExxonMobilFlowline AlaskaFluorFriends of Pets

G-MGBR EquipmentGCI Industrial Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9GES Inc.Global Land ServicesGlobal Offshore Divers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4GPS EnvironmentalGuess & Rudd, PCHawk ConsultantsIce ServicesInspirationsJackovich Industrial & Construction SupplyJudy Patrick PhotographyKenai AviationKenworth AlaskaKuukpik Arctic ServicesKuukpik - LCMF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15LaBodegaLast Frontier Air VenturesLister IndustriesLounsbury & AssociatesLynden Air CargoLynden Air Freight Lynden Inc.Lynden InternationalLynden LogisticsLynden TransportMapmakers of AlaskaMAPPA TestlabMaritime HelicoptersMarketing SolutionsMayflower CateringM-I SwacoMRO Sales

N-PNabors Alaska DrillingNalcoNANA WorleyParsonsNASCO Industries Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Natco CanadaNature Conservancy, The

NEI Fluid Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6NMS Employee LeasingNordic Calista . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18North Slope TelecomNorthern Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Northland Wood ProductsNorthrim BankNorthwest Technical ServicesOil & Gas SupplyOilfield Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Opti Staffing Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7PacWest Drilling SupplyPDC Harris Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Peak Civil TechnologiesPeak Oilfield Service Co. . . . . . . . . . . . . . . . . . . . . . . . . . . .12PencoPetroleum Equipment & Services . . . . . . . . . . . . . . . . . . . .17Petrotechnical Resources of AlaskaPGS OnshorePolar SupplyPrice Gregory International

Q-ZQUADCORain for RentSafety OneSalt + Light CreativeSchlumbergerSeekins Ford . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6STEELFABStoel Rives3M AlaskaTA StructuresTaiga VenturesThe Local PagesTire Distribution Systems (TDS)TOMCO Group of Companies . . . . . . . . . . . . . . . . . . . . . . . .14Total Safety U.S. Inc.Totem Ocean Trailer ExpressTotem Equipment & SupplyTTT EnvironmentalTubular Solutions AlaskaUdelhoven Oilfield Systems ServicesUmiaq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Unique Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Univar USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Universal WeldingURS AlaskaUsibelliWest-Mark Service Center . . . . . . . . . . . . . . . . . . . . . . . . . .15Weston SolutionsWestern Towboat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20XTO EnergyYenney & Associates

Crowley promotes LaMoureaux VP of internal auditCrowley Maritime Corp. said March 22 that to provide even greater

emphasis on ethics and compliance within the company, it has promot-ed Arthur LaMoureaux to vice president of internal audit, ethics andcompliance. He will remain domiciled in Jacksonville and report directlyto Vice Chairman and Executive President Bill Pennella. “Given the size,scope and diversity of Crowley, we believe it is of the utmost importanceto sharpen our focus even further on ethics and compliance,” said TomCrowley, chairman, president and CEO. “Arthur will be helping usexpand our code of conduct, more clearly establish our confidentialreporting structure, and coordinate even more training, education andcommunication on ethics and compliance.” In addition to his internalaudit responsibilities, LaMoureaux will be monitoring and reporting on the company’s compli-ance and ethics program, providing guidance for the board of directors and senior manage-ment team, and working with the legal department on policies and procedures.

Opti celebrates 10 years of recruiting successOpti Staffing Group said March 17 that it is celebrating its 10 year anniversary. Opti was

founded 10 years ago by Mike Houston, VPsales and marketing; Avonly Lokan, president;and Ron Hansen, VP of operations, three indi-viduals who saw a need for a different businessmodel within the staffing and recruitment serv-ices sector. With six locations in four states,Opti provides a superior option to its customersand candidates alike, seeking to attract the besttalent and fit for their organizations, and indi-viduals who wish to advance their careers.Focusing on the staffing and recruitment ofemployees across a wide array of industries, Opti regularly assists candidates and companiesin the areas of engineering, accounting and finance, sales and marketing, operations manage-ment and assistance, and skilled trades. For more information visit www.optistaffing.com.

Global Diving & Salvage opens new office in CaliforniaGlobal Diving & Salvage Inc. said March 30 that it is expanding operations in the San

see OIL PATCH BITS page 17

ARTHUR LAMOUREAUX

Mike Houston, Avonly Lokan and Ron Hansen

CO

URT

ESY

OPT

ISTA

FFIN

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Liberal party. The game ends by allow-ing participants to e-mail a pre-writtenprotest to the two leaders. Available atwww.tarnation.ca, Facebook and onlinegaming sites, the game is the creation ofthe Polaris Institute, a left-leaning thinktank. The boss won’t allow me to takesides, but hey, whatever happened toplaying nice?

COOLEST CURRICULUM ...Greening of Oil, supporting 2041's educa-tional mission, has highlighted portions ofAbdulla AlMisnad’s daily expedition logsas discussion points for educators andposted a link to 2041’s CoolestCurriculum on the Antarctica expeditionweb page athttp://www.greeningofoil.com/antarctica.aspx. Definitely check the logs out, andlook for 2041 lesson info with Abdulla’spost-expedition entries.

SPEAKING OF GOO ARTICLES …Greening of Oil (referred to as GoO inter-nally) posted recently another interestingpiece in its 365 Days of Green column,which is written by students (who areallowed to express their opinions!). In thiscase, the student was Gavin Leighton, afirst-year graduate student studying biolo-gy at the University of Miami. His piece,posted March 30 at http://bit.ly/90z3zb istitled “Expanding the behavior wedge:Understanding and implementing changesthat affect CO2 emissions.” Everyoneknows it saves energy, money and reducesour carbon footprints when we turn off thelights and turn down the heat when weleave the house, but Leighton addressesthe “hidden behavior wedge”. Ways toreduce our individual carbon footprintsthat we might not know about. Did youknow that appliances draw electricity evenwhen they are off? It might be tedious tounplug all your appliances when you’renot using them, so Leighton suggests

plugging several appliances into a powerstrip with an on-off switch. Worth reading.

A SIGN OF THE TIMES ... This head-line caught my attention: BP’s SolarRetreat Signals Exodus of U.S.Renewable-Energy Jobs. I read the articleat http://bit.ly/d2CVNX and decided topost it for discussion on my social sites.Do people really feel this is a sign of thetimes, or an easy out, and whose problemit is? Here’s a taste of comments Ireceived: “It’s a transition — back to whatBP is good at, exploration and production— make the best use of the money andgenerate energy at the lowest possiblecost.” • “I’m not in favor of traditionalenergy companies moving away fromclean tech but am of the view that theyshould just focus on related technologiessuch as CCS, biofuels etc. Solar, wind andsimilar technologies should (be) advancedby the companies that are traditionallygood in them.” • “It’s about governmentpolicies and incentives for companies. TheU.S. government seems to have had an onagain off again policy. Big business can’tjust flip a switch.” • A Canadian respon-dent suggested feed-in tariffs, policymechanisms designed to encourage theadoption of renewable energy sources andto help accelerate the move toward gridparity, where renewable electricity is equalto or cheaper than grid power. Accordingto the respondent, it was popularized inGermany, thriving in Ontario, and adoptedby 63 jurisdictions around the world as of2009. So readers what do you think?

SERIOUS BRAGGING RIGHTS ...Student teams from Laval University inQuebec, Canada, and Mater Dei HighSchool in Evansville, Ind., defended theirrespective titles at Shell’s 2010 Eco-marathon in Houston, Texas last weekend.The event challenged students to design,build and test fuel-efficient vehicles thattravel the farthest distance using the leastamount of energy. Both schools returnedto win with combustion engine vehicles,

Laval winning the “Prototype” categorywith 2,487.5 miles per gallon, and MaterDei the “UrbanConcept” category with437.2 mpg. You must check out the pho-tos. Was your alma mater involved? Andstudent readers should seriously considerdethroning these champs next year! Here’sthe Web site: http://bit.ly/dBdofr

GREEN GOODIES FROM ELEPHANTPOO … The Advertising SpecialtyInstitute has released a first-ever list of top10 eco-friendly giveaways for Earth Day2010, which is April 22. A search of theinstitute’s promotional products databaseby editors of Counselor magazine revealedthat marketers eager to demonstrate theirearth-friendliness are snatching up every-thing from notebooks made of elephantpoo (my favorite, and yes, they are madefrom real elephant poop) to 5-minuteshower timers to anti-bacterial hemp blend

polo shirts to promote their businesses.Products made from renewable resourcessuch as bamboo dinnerware, compostablepens and jar openers made of recycledtires top promoters’ shopping lists becauseincreasingly earth-conscious consumerswelcome the green message they send. “Infact, these items are so popular that wenow have an exclusive pavilion at our fivesuperregional trade shows dedicated toshowcasing new eco-friendly products,”said ASI President and CEO Timothy M.Andrews. To see all 10 eco-friendly give-aways and get other information, visitwww.asicentral.com/earthday. �

Contact me! I am Greening of Oil’ssocial networker. My weekly column isposted in both Petroleum News and onGreening of Oil’s Buzz and Latest newspages. My e-mail address [email protected].


Francisco Bay area by opening an office in Richmond, Calif., to augment its existing Rio Vistaoffice. The Richmond office will expand Global’s existing diving services and offer additionalenvironmental and waterfront services which include ship husbandry, preventative boomingand fendering operations. The new location will shorten the response time for diving, ROVand salvage services by having personnel and equipment located in the Bay area. KyleWatson, operations manager, will be working hand in hand with Kevin Pehle, Global’s RioVista office general manager, to ensure that the company’s standard of excellence in per-formance, safety and customer service is delivered above expectations to existing clientsthroughout the California region. For more information visit www.gdiving.com.

NAC signs maintenance agreement with OAINorthern Air Cargo said March 29 that it recently signed an agreement with Omni Air

International to provide maintenance for its aircraft at the Ted Stevens International Airportin Anchorage, Alaska. NAC will provide certified aircraft maintenance personnel andresources as well as ground services equipment and deicing services on an as-needed basis.“Anchorage is a prime stop for many trans-oceanic flights and we are very excited to be ableto expand the services we provide to other carriers,” said NAC spokeswoman MargotWiegele. Northern Air Cargo is Alaska’s largest all cargo airline offering scheduled and char-ter services throughout Alaska, the Lower 48 and North America.

Editor’s note: All of these news items — some in expanded form — will appear in thenext Arctic Oil & Gas Directory, a full color magazine that serves as a marketing tool forPetroleum News’ contracted advertisers. The next edition will be released in September.


OIL PATCH BITS


MAC ACKERS

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a revision of the bill then-Gov. Sarah Palinfirst proposed late in the 2009 regular ses-sion.

The flexibility extends to regulation,creating a natural debate: The utilitiesdon’t want GRETC to be regulated. Somelawmakers and regulators insist it must be.Gov. Sean Parnell is in the middle. Thesides made their case over half a dozenhearings in a single week.

As if the stakes weren’t high enough,the utilities also believe the Legislatureneeds to pass something now to guaranteeutilities can start planning for future needs,even though lawmakers didn’t get a revisedbill until two months into a 90-day session.The regulation question, though, threatensto make the bill too complex to handle thisyear.

Understanding the GRETC modelThe debate is both general and particu-

lar in nature, touching not only the broadphilosophical reasons for and against regu-lation, but also the unique case of GRETC.

While different in many ways, both thePalin and the Parnell versions of the billwould lead to the creation of a corporationthat owns generation and transmissionassets in the Railbelt. This corporationwould sell power at wholesale rates to theutilities. Those utilities would in turn dis-tribute this power to local customers at uni-form retail rates.

The utilities would be members of thecorporation and each hold seats on itsboard.

The basic assumption is that the utilitieswould be stronger working as a single unitthan working individually. At a SenateResources Committee meeting on March24, Sen. Hollis French, D-Anchorage,asked why that assumption is valid. “If youtake six small utilities, put them into onebig utility: How do they get any stronger,

financially, than they were before? They’restill six small utilities. Their assets don’t goup. Their balance sheets don’t get any bet-ter. You just put them all into one building,”French said.

Jim Strandberg of the Alaska EnergyAuthority said a single entity can reducecosts by using infrastructure more effi-ciently and can get better financingbecause of its size.

Why not JAA?Lawmakers in both the House and

Senate wanted to know why the utilitiesneeded GRETC. Why couldn’t they use theJoint Action Agency, a provision in statestatute that creates guidelines for two ormore utilities to come together on projectdevelopment?

Strandberg said that a JAA is gearedtoward helping utilities develop new proj-ects. That’s a major piece of GRETCbecause the Railbelt region needs billionsin infrastructure investment in the comingdecades, but it’s not the only piece.GRETC would also standardize the trans-mission system, manage regional dispatchand make long-term plans.

In other words, the JAA was created tobuild isolated projects, but it doesn’t doregional planning, as Brian Bjorkquist, aDepartment of Law attorney with a longhistory working on utility matters,explained it to the House SpecialCommittee on Energy on March 30.

The proposed GRETC bills mandatethat planning. “Without it, you’re in the sit-uation where you’re in right now: All theutilities could elect to plan on a regionalbasis, but for whatever reason that hasn’thappened globally throughout theRailbelt,” Bjorkquist said.

That reluctance prompted revisions tothe bill, which Bjorkquist described as “asubtle shift” from a “quasi-public” corpo-ration to a “more private” nonprofit com-pany.

That model is essentially all carrots andvery few sticks: The utilities will partici-pate only if they see proof that doing so isin their best interest. The legislation sweet-ens the offer with severity, promising tofunnel state funding for energy projectsthrough GRETC, but nothing in the billprevents a utility from being a member andworking on projects alone.

The goals of regulationThe way the utilities see it, that makes

them the consumers of GRETC. So whenit comes to regulation, oversight meant toprotect the consumer, they feel it’s unnec-essary. Because the utilities are alreadyregulated, regulating GRETC would beredundant.

“If you add another layer on there, youadd cost and delay: Why is that neces-sary?” Joe Griffith, interim general man-ager of Matanuska Electric Association,asked the House Energy Committee onMarch 30.

The committee substitute produced bythe joint utility task force did not regulateGRETC at all, but the Parnell administra-tion balked. As a compromise, the utilities

agreed to a five-year sunset clause. Now,regulation beyond 2015 would require leg-islative action.

“During that five-year period, we willprove to you that we don’t need RCA reg-ulation,” Rick Schikora, a board memberof Golden Valley Electric Association, saidon March 25.

Upon direct questioning from lawmak-ers, several utilities explicitly said theywould still participate in GRETC even if itwere permanently regulated. The need tocooperate, they said, is too immediate.However, they pleaded with lawmakers notto change the bill.

“If we follow the Bradley model, regu-lation is unnecessary,” Mark Johnson, gen-eral counsel for Chugach ElectricAssociation, member of the task force thatrevised the bill and former RegulatoryCommission of Alaska commissioner, toldSenate Resources March 29.

Unnecessary because the GRETCstructure inherently achieves the goals ofregulation.

Protect the consumer? The utilities arethe consumer. Prevent monopoly pricing?The utilities don’t have to buy power fromGRETC. Restrain investment spending?All GRETC projects would have to followthe guidelines of an Integrated ResourcePlan.

“These are the goals,” Johnson said.“It’s not like there’s a bunch of other stuffout there that the Legislature needs to beconcerned with.”

An unregulated energy giantThe Legislature is concerned, though.Across the various meetings, lawmak-

ers continually asked about the scope ofGRETC.

Various iterations of the bill wouldallow the GRETC to buy oil and gas leas-es, to own pipelines, to conduct businessoutside the state and to have the power ofeminent domain.

The utilities and the AEA say the pointis simply to create opportunities for chas-ing down the best deals. AnchorageMunicipal Light & Power is the envy of theRailbelt utilities because it owns a share inthe Beluga gas field, and other utilitieswant that opportunity.

Some lawmakers, though, see the possi-bility of an unregulated energy behemoth.

House Energy Co-Chair CharisseMillett, R-Anchorage, presented a scenariowhere a state-financed GRETC startsexploring for natural gas in the Cook Inletbasin, chases away private sector explorersand then gobbles up all the infrastructureleft behind.

“I’m worried we’re setting up a state-owned oil and gas company to drive exist-ing oil and gas players in the Cook Inlet outof the market. That scenario could hap-pen,” Millett said.

Because of those concerns, some ofthose provisions are not in the most recentbill, but this point is so crucial that HomerElectric Association suggested it might notjoin GRETC unless certain provisionsrelated to fuel supplies remained in thefinal bill.

On a more near-term basis, some law-

makers and regulators see GRETC differ-ently than the utilities. They see ratepayersin the Railbelt as the primary consumers ofGRETC.

House Majority Leader Kyle Johansen,R-Ketchikan, said he wouldn’t support thebill on the House floor unless it containedRegulatory Commission of Alaska protec-tions. That’s a philosophical decision:Johansen represents a district not directlyimpacted by the bill.

“To use an old, tired-out term: In mymind, the customers need to be protected,”he said.

Senate Resource Co-Chair BillWielechowski, D-Anchorage, offered theutilities a bit more wiggle room. “From myperspective, they will have a very high bur-den of proof to prove, at least to me, whynot being regulated after five years is agood thing,” he said.

A big dog in the fightNaturally, regulators have also

expressed concerns and questions.The Regulatory Commission of Alaska

supported the original incarnation ofGRETC last year, RCA Chairman BobPickett reminded the House Energy com-mittee on March 30.

The changes, though, have Pickett con-cerned. Speaking for himself, not for thecommission — something several utilityrepresentatives challenged him on later —Pickett questioned the “layers” touted byGriffith and the “goals” touted by Johnson.

“I think it’s fair to say there is thisunderlying assumption throughout the billthat auditing equals regulation, or corpo-rate governance equals regulation, or thereare some federal forms of regulation thatsupplant the normal ratemaking process,”Pickett said. “Again — keep in mind I’mspeaking for myself — I think nothingcould be further from the truth.”

Pickett sees ratepayers as the con-sumers. He noted that GRETC would man-age the two most expensive components ofhousehold electricity bills: generation andtransmission.

“It’s going to become the driver forindividual household electric bills,” hesaid.

It’s no secret that GRETC would funda-mentally change the electricity market inthe Railbelt, but Pickett said, “If the dereg-ulation of the electrical utility system, thesystem as a whole, is actually one of theinherent main goals of GRETC, I thinkthat decision should be made transparently,out in the open, with all of the arguments.”

The RCA called an emergency meetingon March 31 to consider the legislation,taking two hours of testimony from utilityrepresentatives in favor of the bill as itstands and several consumer groups gener-ally in favor of the GRETC concept, butnot its execution.

The two bills remain in committee, eachwith several committees still to passthrough before reaching a vote on the floor.The legislative session ends on April 18. �


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with the Geological Survey of Canada.The projects will range from geology,

geochemistry and geophysics, allowing Uof C scientists and the GSC to performjoint field work, said Dave Eaton, head ofthe U of C’s geosciences department.

“This is all about breaking down barri-ers between two silos (government andacademia),” bringing together the previ-ously separate research efforts of NaturalResources Canada and the university, hesaid.

“New research on carbon capture andstorage, or possibly geothermal energysources, will contribute to broad-basedefforts to reduce greenhouse gas emis-sions,” Eaton said.

Rob Anders, a member of theCanadian Parliament, said the collabora-tion will “advance our understanding ofCanada’s Arctic energy resources andhelp us manage our greenhouse gases,support our competitiveness and promoteour long-term energy security.”

Alan Harrison, the U of C’s provostand academic vice president, said theresearch that will take place in the Arcticenergy basins will “provide the scientificframework needed to underpin newexploration and development initiatives.”

Benoit Beauchamp, geosciences pro-fessor and executive director of the ArcticInstitute of North America on the U of Ccampus, said the center will open the wayto “new and necessary opportunities forresearch and exploration” of the largestremaining conventional oil and gas fieldsin Canada.

Geomapping under wayThe Canadian government is already

spending C$100 million over the 2008-13period on a geomapping for energy andminerals program, called GEM, to guideinvestment decisions that will result in thediscovery and development of new energyand mineral deposits in the Arctic.

GEM is mapping Arctic regions wherethere is insufficient public geosciencesinformation to attract private sectorspending.

The government said the need is par-ticularly acute in the NorthwestTerritories and even more for NunavutTerritory, where adequate geologicalknowledge exists for only one-third of theland mass.

GEM will also fill critical informationgaps in the knowledge base to boostexploration activities in the Canadianprovinces.

About 75 percent of the federal fundswill be allocated to the Arctic and the bal-ance to the provinces.

A collision courseHowever, governments and industry

are also on a collision course withCanadian aboriginal and environmentalgroups, which issued a joint open letterMarch 26 urging an international ban onall new exploration in the Arctic.

The Council of Canadians and theIndigenous Environmental Network haveteamed up with an IEN affiliate, ResistingEnvironmental Destruction OfIndigenous Lands Network of Alaska, tomake their case to Canada, the UnitedStates, Norway, Denmark and Russia,prior to an Arctic Summit, which startedin Quebec City March 29.

The letter said it is “abundantly clearthat we collectively face a climate crisisthat requires profound changes to oureconomics and societies.”

It said carbon dioxide concentrationsin the Earth’s atmosphere are estimated at390 parts per million, compared with the350 parts per million that scientists regardas safe, sending a clear warning signalthat greenhouse gas emissions caused bydependence on fossil fuels have reacheddangerous levels.

The coalition said it is “imperative thatsteps are taken to transition away fromfossil-fuel-based economies.”

“Agreeing to a moratorium on all newexploration for fossil fuel resources is alogical first step” towards the creation ofsustainable jobs, energy and environment,the letter said.

The push to open up the Arctic to fos-sil fuel development has seen a steadydecline in the health of aboriginal peoplesin Arctic regions where energy develop-ment has taken place over the past 30years, the coalition said.

The letter estimated that the Arcticcould contain 90 billion barrels of oil and1,670 trillion cubic feet of gas — a prizethat is rapidly attracting interest from thepetroleum industry.

If allowed to go unchecked, suchdevelopment — which the coalition notedhas been made possible by the impacts ofclimate change on the fragile Arcticecosystem — will only contribute to the

“already serious climate crisis.”

Bolstering territorial claimsBut the Canadian government has

made Arctic development one of its lead-ing priorities to bolster its territorialclaims.

In 2005, Canada and Denmark sentwarships to assert control over HansIsland, a pinprick outpost off Greenland,and in 2007 a Russian submarine planteda flag in a titanium capsule to assert itsclaims to the North Pole.

The issue is being examined by the

United Nations, which has given theaffected countries until 2013 to submitmapping and technical data to resolveboundary disputes.

Sources say Canada and Denmarkhave started discussions to resolve theirown Arctic boundary dispute, mostlyinvolving an area of about 52 squaremiles of the Lincoln Sea north ofCanada’s Ellesmere Island and separatefrom Hans Island. �


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degrees, but summer won’t begin for sev-eral more months.

Now, though, AlMisnad is shifting hisfocus, taking the experiences from his tripto the most remote place on earth andwriting post expedition logs for people inthe least remote places.

“It’s surprising how rich and vibrantthe place is,” AlMisnad told PetroleumNews on March 29, safe and sound backin Doha. “That’s what you don’t expectjust because you kind of get used to livingvery detached from nature. Another thingthat really surprised me is the diversebackgrounds of the people that were withus on the trip, in terms of both theirnationalities and professions. This went toshow me that sustainable developmentreally is a global issue that is beingapproached from so many differentangles. We had hedge fund managersinvesting in green tech, singers singingabout new responsibilities, actuaries try-ing to calculate the increased risks associ-ated with global warming.”

In his log, AlMisnad wrote thatAntarctica becomes a symbol to all whovisit, from a personal challenge, to a glob-al challenge, to a source of beauty andinspiration. Thinking back, AlMisnad saidAntarctica came to symbolize “undevel-oped places; it’s a symbol of the fact thatwe don’t understand the real value of whatwe get from nature. I mean even in termsof resources like water, air, food and min-erals, we’ve kind of built our worldassuming that these things will remaincheap for the long run. The challenge isreally to rethink this assumption and seehow it affects our industrial system.”

The adventuresBefore the lessons, though, come the

adventures. Paradoxically, King George Island

brought not only grass, but also civiliza-tion. AlMisnad described it as “basically acollection of research bases from all overthe world” where Russians, Chinese,Chileans, Argentineans, Uruguayans,Koreans, Brazilians and researchers fromother countries work, where two churchessit on either side of a valley, where theChinese and the Russians operate nearbybases in two different time zones.

On March 15, day 11 of his trip,AlMisnad wrote about how it was“strange to see all of the metal against theAntarctic background. A few people don’tlike this, I’m not sure I mind too much.”His reason? Sustainable development,which he defines as “figuring out how tomake humans interact with the environ-

ment in a way that makes sense for both.”That philosophy includes the trip itself,

which AlMisnad described as a form ofdevelopment, where humans left a mark,however small, on untouched wilderness.

“The issue did come up and in fact2041 calculated the total carbon footprintof the trip and recommend ways to offsetthat CO2,” AlMisnad wrote to PetroleumNews. “I don’t really see any contradic-tion though. The challenge of the future ismore to figure out how to coexist withnature, how to make the most of it whilethinking about the future.”

Like an ancient explorationThat’s the attitude AlMisnad brought

with him to Doha where he continues topost occasional entries in a post expedi-tion blog on Greening of Oil. He’s home,but he’s not done exploring.

He compares research into sustainabledevelopment to the great explorations ofold.

“Columbus did it for gold. Shackletondid it for glory. The Vikings did it for fish.We do it for the environment and ourfuture,” he wrote in his final log for theexpedition. “Sustainable development issomething of a blank spot on our maps.We still don’t fully understand the ways inwhich our actions affect the environmentand how the environment in turn affectsus and will affect our children. What wedo realize is that we are not developing ina way that makes the most sense givenhow important the environment is.”

AlMisnad interviewed Bill Spence, aShell Oil expert on carbon dioxide whoalso went on the expedition to Antarctica,who described his own environmentalepiphany.

A few years after graduating, Spencefound himself deep enough into his careerto be have some extra money and freetime, and a place of his own, when a col-league from Nigeria asked him, “Whenyou go home to your flat and you are sit-ting there in the little box, how can you

tell when your neighbor needs you? Myhead spun. What I had spent 20 odd yearsof my life working towards, I realized,was a small pebble at the base of a moun-tain. There’s much more to my world thanI had ever imagined: Community.”

AlMisnad believes his job with Shellhelps this cause.

“Shell does a lot of things related tocarbon management, basically trying toreduce the CO2 emitted from Shell’soperations and products. They do every-thing from improving the energy efficien-cy of their operations to developing newfuels to advocacy,” he wrote. “What wedo here in Qatar is try to develop carboncapture and sequestration projects to cap-ture CO2 made in Qatar and store itunderground.”

Ideas for further learningIn his recent, post expedition, logs,

AlMisnad offers tools to help peoplelearn more about sustainability.

In one, he offers more than a dozenlinks for readers to measure and tracktheir environmental footprint, as well asfor Web sites devoted to sustainableresearch and development and to show-casing tips for creating a more energyefficient household.

That feeds into the “CoolestCurriculum,” a lesson plan on Antarcticacreated by 2041, the organization respon-sible for the expedition AlMisnad andSpence joined.

AlMisnad believes these tools can helppeople understand their responsibilities.“It takes activists and politicians to makenew laws. It takes engineers and bankersto make better plants. It takes homeown-ers and office workers to turn off thelights and it takes students and teachers tokeep the lights on,” he wrote. “We all haveresponsibilities to see how we can helpfill in those gaps in the map and toexplore the value of unspoiled places.

Greening of Oil has posted links to2041’s Coolest Curriculum on theAntarctica expedition Web page athttp://www.greeningofoil.com/antarctica.aspx, as well as highlighted portions ofAbdulla’s daily expedition logs as discus-sion points for educators of children 8-12years of age.

—PETROLEUM NEWS


ANTARCTICA“We’ve kind of built our worldassuming that these things willremain cheap for the long run.

The challenge is really to rethinkthis assumption and see how itaffects our industrial system.”

—Abdulla AlMisnad

Antarctic lichen

Orcas and penguins

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