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Vol. 16, No. 25 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of June 19, 2011 • $2
� E X P L O R A T I O N & P R O D U C T I O N
� E X P L O R A T I O N & P R O D U C T I O N
� P I P E L I N E S & D O W N S T R E A M
page4
Paskvan: Workforce issues concern for chair of Senate Labor & Commerce
CO
URT
ESY
OF
GEO
FOR
CE
TEX
AS
The outdoor classroom
Oil in the InletThe origin of Cook Inlet oil continues to raise some intriguing questions
By ALAN BAILEYPetroleum News
Questions over how oil formed and then becametrapped in Alaska’s Cook Inlet basin are of cru-
cial importance to people considering sinking millionof dollars into the drilling of wildcat wells in a regionthat has for long played second fiddle to the NorthSlope oil province. Are there major oil fields yet to bediscovered in the relatively underexplored Cook Inletregion? And in which rocks is the oil likely to befound?
Two sequencesThe region contains two major rock sequences
from the Mesozoic era and the Tertiary period, bothwith maximum thicknesses well in excess of 20,000
feet. The younger Tertiary strata lie above the olderMesozoic rocks.
Following early 20th century exploration of theAlaska Peninsula and the Iniskin Peninsula on thewest side of Cook Inlet, where there is evidence foran active petroleum system in the Mesozoic, geol
The bottom line on all of this seems to bethat, with relatively few wells drilledoutside or below known oil fields andwith a general lack of high-resolution
seismic data, huge unknowns anduncertainties remain regarding Cook Inlet
petroleum geology.
see OIL ORIGINS page 20
Osprey back in productionAfter workover, Cook Inlet Energy well on platform makes steady 350 barrels a day
By WESLEY LOYFor Petroleum News
The Osprey platform on the west side ofAlaska’s Cook Inlet is producing oil again.
The parent company of operator Cook InletEnergy LLC of Anchorage announced a well onthe platform, the RU-1 well, had been successfullyredeveloped by changing an electric submersiblepump.
The well is “currently flowing above expectedrates” at a steady level of about 350 barrels per daygross, Miller Energy Resources Inc. said in a June13 press release.
Crude from the platform will be sold to Tesoro,
May 19 shot of Osprey platform in Cook Inlet. Seen onthe platform is a hydraulic snubbing unit from CuddEnergy Services. The snubbing unit is being used forwell workovers. Platform operator Cook Inlet Energymobilized the unit from Broussard, La., in April.
CO
OK
IN
LET
ENER
GY
LLC
see OSPREY PRODUCTION page 19
Untimely pipeline spillsTransCanada, Enbridge buffeted by accidents; Alberta frets over landlocked bitumen
By GARY PARKFor Petroleum News
What started out as a reported four-barrel spillon an Enbridge pipeline in the Northwest
Territories, is now estimated to be in the range of 700to 1,500 barrels.
Around the same time, there was a leak of about10 barrels from a Kansas pump station onTransCanada’s existing Keystone pipeline, forcing aweek-long shutdown of the 591,000-barrel-per-daysystem — the 11th break, averaging less than 10 bar-rels, along the 1,260-mile U.S. portion of the line inits first year of operation.
Not much in the grand scheme of things, butunfortunate timing for the two Canadian pipelinecompanies as they try to sway regulators, govern-
ments and citizens to support their massive newundertakings — TransCanada’s 500,000 bpdKeystone XL addition and Enbridge’s 525,000 bpdNorthern Gateway project.
Their safety records are an overriding concern astwo export pipeline applications enter a crucial round
TransCanada’s Chief Executive OfficerRuss Girling found some cause for hope,predicting that, because no new issues
have been raised in the final publiccomment phase, the State Department
will meet its year-end deadline for makinga decision.
see UNTIMELY SPILLS page 18
Linc acquires Renaissance Umiatfield; seismic, drilling planned
Linc Energy, the Australian independent which acquiredCook Inlet acreage last year and has already drilled its firstwell in the state, has now acquired the Umiat oil field on theNorth Slope and plans to fly a rig into the field for work thiswinter season.
Linc Energy Ltd., based in Brisbane, said June 16 that itswholly owned subsidiary Linc Energy (Alaska) Inc., hasacquired a controlling interest in the Umiat oil field.
Umiat is on the southeastern border of the NationalPetroleum Reserve-Alaska, some 80 miles west of the trans-Alaska oil pipeline.
BLM announces accelerated oil &gas lease sales program in NPR-A
Following a mid-May statement by President Obama,announcing an intent to increase U.S. domestic energy produc-tion, including a plan to conduct annual oil and gas lease sales inthe National Petroleum Reserve-Alaska, on June 16 the U.S.Bureau of Land Management announced that it plans hold anNPR-A lease sale by the end of 2011and annually after that.
The agency had previously anticipated waiting until comple-tion of a new NPR-A integrated activity plan before schedulingthe next lease sale in the reserve, with that lease sale likely to takeplace 2013. The newly emerging lease sale program, which isaccompanied by deepwater lease extensions for Gulf of Mexicooperators impacted by the Deepwater Horizon disaster, moves
The one that got away: Did Muklukoil end up in the Kuparuk field?
BP’s 1982 Mukluk well, drilled from a gravel island in thenearshore waters of the Beaufort Sea off Alaska’s North Slopeand costing in excess of $1 billion, has gained notoriety as themost expensive dry hole in oil industry history. Testing a poten-tial oil trap where rocks of the Sadlerochit group, analogous tothe reservoir rocks of the nearby giant Prudhoe Bay field, abut aregional break in the rock strata known as the lower Cretaceousunconformity, BP expected the well to encounter a massive oilpool. In the event, all that remained of any oil that might oncehave existed in the Mukluk structure was extensive oil staining.
And people have tended to view the Mukluk failure as result-ing from oil leakage through the rocks that should have sealedthe oil trap.
see LINC DEAL page 19
see LEASE SALES page 17
see MUKLUK OIL page 18
GeoFORCE students conquer their fears and the Grand Canyon inJuly 2010. Read more about the successful Texas project and plansfor a similar Alaska program on page 10.
2 PETROLEUM NEWS • WEEK OF JUNE 19, 2011
contents Petroleum News North America’s source for oil and gas news
7 BLM seeks advisory council nominees
9 Congress considering NPR-A legislation3 Alaska - Mackenzie Rig Report
14 Ormat moves ahead on Mt. Spurr drilling
15 CEA board approves Fire Island terms
15 BOEMRE tightens operations oversight
EXPLORATION & PRODUCTION
ALTERNATIVE ENERGY
11 ‘Are We Entering a Golden Age of Gas?’
New report from International Energy Agency sketches scenario that could make natural gas a much bigger energy player by 2035
13 DNR: terms to change for O&G sales
Division of Oil and Gas says Beaufort Sea, North Slope, foothills sales will contain conditions, options, not previously seen
14 Eyeing the possibilities at Kotzebue basin
Consultant, NANA say the Kotzebue basin in northwestAlaska has large prospects and potential for natural gas and possibly oil
GOVERNMENT
FINANCE & ECONOMY
6 Point Thomson alternatives cut to 5
Agencies working EIS have cut nine alternativesdeveloped from scoping comments to five; draft EIS still scheduled for November
7 Nothing more than a blip
Alberta’s bitumen production to more than double;conventional may see slight rise, peaking in 2013, but no new pools being found
17 Billions on the line
Alberta Finance Minister Lloyd Snelgrove says key to Asia investment in Alberta ability to ship oil sands crude, LNG, to China
10 Making a geoscience difference in Alaska
Great Bear Petroleum joins UAF, others in launching Alaska program for rural high school students based on Texas GeoFORCE model
8 Marathon loses Alaska Supreme Court case
DNR upheld on decision to partially deny company’srequest to use different royalty calculation method for Ninilchik gas production
4 Workforce issues concern for Paskvan
Fairbanks Democrat has tax bill in Labor & Commerce, raised issue of report on state’s inability to process tax data efficiently
NATURAL GAS
LAND & LEASING
Linc acquires Renaissance Umiat field; seismic, drilling planned
BLM announces accelerated oil & gas lease sales program in NPR-A
The one that got away: Did Muklukoil end up in the Kuparuk field?
ON THE COVEROil in the Inlet
The origin of Cook Inlet oil continues to raise some intriguing questions
Osprey back in production
After workover, Cook Inlet Energy well on platform makes steady 350 barrels a day
Untimely pipeline spills
TransCanada, Enbridge buffeted by accidents; Alberta frets over landlocked bitumen
ADVERTISE NOWExploring the Alaska-Washington ConnectionBeginning with the Klondike Gold Rush in 1897 and secured by the Alaska-Yukon-Pacific Exposition of 1909, the partnershipbetween the two states impacts our economies now more than ever.
The Alaska-Washington Connection celebrates the enduring relationship between Alaska and Washington with a comprehensive look at new developments in the Alaska-Washington trade. This year the magazine will feature articleshighlighting these special companies, a roundup of key initiatives to spur the rural Alaska economy and reports on the latesthappenings in Alaska’s mining industry.
Distribution will include 30,000 copies in print and electronic formats to be sent to all Petroleum News and Mining Newssubscribers, Alaska and Washington Chambers, and business and trade organizations covering oil, gas, mining, tourism andtransportation.
Contact Marketing Director Bonnie Yonker for further details at [email protected] or 425-483.9705.
PETROLEUM NEWS • WEEK OF JUNE 19, 2011 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 W-221 BPSky Top Brewster NE-12 15 (SCR/TD) Doyon Yard for Modification ENIDreco 1000 UE 16 (SCR/TD) Milne Point MPF-86/OH BPDreco D2000 UEBD 19 (SCR/TD) Alpine CD4-208 ConocoPhillipsAC Mobile 25 Prudhoe Bay K-10C BPOIME 2000 141 (SCR/TD) Kuparuk 31-08 ConocoPhillipsTSM 7000 Arctic Wolf #2 In Nisku, AB Available
Nabors Alaska DrillingTrans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay AvailableAC Coil Hybrid CDR-2 Kuparuk 1E-07A ConocoPhillipsDreco 1000 UE 2-ES Prudhoe Bay Stacked out AvailableMid-Continental U36A 3-S Prudhoe Bay Stacked out AvailableOilwell 700 E 4-ES (SCR) Prudhoe Bay X-22A BPEmsco Electro-hoist 7-E (SCR-TD) Stacked, Deadhorse Available Dreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay B-10 BPDreco 1000 UE 9-ES (SCR/TD) Has been released by Brooks Range Available
PetroleumOilwell 2000 Hercules 14-E (SCR) Prudhoe Bay Stacked out AvailableOilwell 2000 Hercules 16-E (SCR/TD) Prudhoe Bay Stacked out AvailableOilwell 2000 17-E (SCR/TD) Prudhoe Bay Stacked out 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) Stacked at Point Thompson AvailableAcademy 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 Oliktok Point OPO9-S1 ENI
Nordic Calista ServicesSuperior 700 UE 1 (SCR/CTD) Prudhoe Bay Drill Site E-23c BPSuperior 700 UE 2 (SCR/CTD) Prudhoe Bay Well Drill Site 15-05b BPIdeco 900 3 (SCR/TD) Kuparuk Well 3H-12 ConocoPhillips
North Slope - Offshore
BP (rig built & being assembled by Parker)Top drive, supersized Liberty rig Endicott SDI for Liberty oil field BP
Nabors Alaska DrillingOIME 1000 19-E (SCR) Oooguruk ODSN-23i Pioneer Natural ResourcesOilwell 2000 33-E Prudhoe Bay Stacked out Available
Cook Inlet Basin – OnshoreAurora Well ServiceFranks 300 Srs. Explorer III AWS 1 Stacked out on the West Side of Cook Aurora Gas
Inlet, conducting per season maintenance
Cook Inlet EnergyAtlas Copco RD20 34 Undergoing winterization Cook Inlet Energy
at W. McArthur River UnitDoyon DrillingTSM 7000 Arctic Fox #1 Stacked Beluga Available
Marathon Oil Co. (Inlet Drilling Alaska labor contractor)Taylor Glacier 1 Kenai Loop #1 Buccaneer Alaska
Nabors Alaska DrillingContinental Emsco E3000 273 Stacked, Kenai AvailableFranks 26 Stacked AvailableIDECO 2100 E 429E (SCR) Stacked Available Rigmaster 850 129 Kenai Stacked out Available
Rowan CompaniesAC Electric 68AC (SCR/TD) Demobilizing and prepping Pioneer Natural Resources
to ship to Lower 48
Kuukpik 5 Preparing for barging to Linc EnergyBarrow- NSB Gas Field Project
Cook Inlet Basin – Offshore
Chevron (Nabors Alaska Drilling labor contract)428 M-11 Steelhead Platform Chevron
XTO EnergyNational 1320 A Coil tubing cleanout planned off Platform XTO
A in the near futureNational 110 C (TD) Idle XTO
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 Has left the NWT MGM Energy Corp.
Alaska - Mackenzie Rig ReportThe Alaska - Mackenzie Rig Report as of June 16, 2011.
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*June 10 June 3 Year Ago
US 1,855 1,854 1,527Canada 232 184 213Gulf 33 33 20
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:
JUDY
PAT
RICK
4 PETROLEUM NEWS • WEEK OF JUNE 19, 2011
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CORRECTIONLocations clarified
A story on an Ivan River gas storage proposal in the June 12 issue of PetroleumNews incorrectly identified the location of existing Union Oil Co. of Californiagas storage. Swanson River is on the east side of Cook Inlet; Pretty Creek is onthe west side.
� G O V E R N M E N T
Workforce issuesconcern for PaskvanFairbanks Democrat has tax bill in Labor & Commerce, raisedissue of report on state’s inability to process tax data efficiently
By STEVE QUINNFor Petroleum News
Sen. Joe Paskvan has one ses-sion as co-chairman for the
Senate Resources Committeeunder his belt, and his work is farfrom over.
Some may say it’s kind of fit-ting that he shares those dutiesof running the committee. Hecomes from a mining family whose firstcontact in Alaska was in Juneau during thegold mining days. His father Tom PaskvanSr. worked as a blacksmith who made toolsfor the mining operators.
Now Paskvan, a Democrat fromFairbanks, finds himself immersed in thestate’s oil tax reduction debate not only asco-chair for the ResourcesCommittee but also as vicechair for the Senate Laborand Commerce Committee.
HB 110, the governor’soil tax reduction bill, sits inLabor and Commerce and also has a refer-ral to the Senate Resources Committee.
Paskvan wasn’t as busy during theLegislature’s special session, but he raisedan issue before his colleagues on theSenate floor: due diligence.
Paskvan brought to light a feasibilitystudy completed by Fast Enterprises,which examined the state’s ability toprocess tax data efficiently.
A $37 million appropriation for a tech-nology upgrade may address that deficien-cy, but Paskvan remains concerned duringthe ongoing debate about the state’s taxsystem.
During the interim he’ll join Labor andCommerce chairman Sen. Dennis Egan inexamining the state’s oil and gas workforceand how the state’s tax system may or maynot influence hiring.
Just before the special session ended,Paskvan sat down with Petroleum News todiscuss what lies ahead.
Petroleum News: Where have you beenmost busy since the regular session endedin April?
Paskvan: There are several areas I havebeen investigating since the end of the reg-ular session. When the press of daily busi-ness was over, then I could focus my
efforts during the special session.In part I’ve done that in the areaof tax issue, effective tax ratesand also in the Department ofRevenue and its access to infor-mation, which is closely connect-ed to the effective tax rate issue.
Petroleum News: What con-cerned you about what you readin the Fast Enterprises report?
Paskvan: When we know that the infor-mation that the Department of Revenue isproviding us is subject to what the Faststudy says is a probability of human error,one has to be apprehensive of one’salliance on that data. We now understandin the area of Alaska’s oil production tax,that the processes are manual, that they arenot assisted by 21st century technology as
far as computer support of thatproduction tax, that you neces-sarily know the Departmentof Revenue’s ability to ana-lyze is significantly restricted
and its ability to advise — whether it’s theLegislature or the governor — is restrictedas well.
Petroleum News: Do you feel like anyinformation was deliberately from theadministration withheld during the debateon oil taxes?
Paskvan: I think it’s disappointing thatthe report was not put on the table at thesame time as the Department of Revenue’sreport to the Legislature on productiontaxes was submitted to the Legislature,which was Jan. 18, 2011. One section ofthat Department of Revenue report to theLegislature deals with the lack of an inte-grated tax management system and cer-tainly the release of the Fast reportaddresses that issue and would be directlyrelevant to that section of the Jan. 18report. Again, it’s disappointing that themagnitude of the reasons why theDepartment of Revenue stated what it saidin the Jan. 18 report, the information theywere obviously relying on was not dis-closed, so that’s very disappointing
Petroleum News: What kind of informa-tion will help you next session?
see PASKVAN Q&A page 5
SEN. JOE PASKVAN
Paskvan: The immediate response to theFast was the inclusion of the Senate’sappropriations of the $34.7 million. That isa first step so that the Department ofRevenue will have the systemic capacity toreceive, to analyze, to forecast, to betteradvise the Legislature once that integratedtax management system has been imple-mented.
Petroleum News: Once that’s in place,is there anything specific that needs to beexamined.
Paskvan: Oh, absolutely. It will tell uswhether operating expenditures that areclaimed are accurate. The systems will pro-vide better capacity for auditing, whetherit’s targeted or spot auditing of sections ofthe information most important to the Stateof Alaska, given the very lucrative treat-ment in Alaska as it relates to capitalexpenditures. We would be able to deter-mine whether the capital expenditures arebeing spent for true capital investment ascompared to items one would normally ormight normally think are operating expen-ditures. So, once we have the idea as tohow the monies that are being 100 percentdeducted and with those same dollars, a 20percent credit to the bottom line, are beingused, then we will know if the credit struc-ture in Alaska’s tax system is being used tocreate more production as compared tosomething other than creating more pro-duction.
Petroleum News: Can you please clarifywhat you meant when addressing your col-leagues, measured twice and cut once?
Paskvan: Growing up, I heard that a lot.It’s a general philosophy that one needs tobe certain of what you’re doing. You wantto measure the distance twice before youbring the saw out and cut the board. If youwant to cut a two-by-four, well you meas-ure twice before you cut once and that wayyou don’t have to buy two two-by-fours. Iwould suspect not only the citizens ofAlaska but the industry as well would hopethat whatever change that might occurwould be a change that everyone wouldunderstand to be a necessary and a long-term as well as effective policy.
Petroleum News: Part of your point ofthe Fast study was that it was not part ofthe oil tax debate. Are there other thingsthat could emerge and broaden the scopeof the oil tax debate — and no specific bill,just the overall debate?
Paskvan: I think the concept of an accu-rate bottom line of what the state keeps onits side of the ledger sheet regarding theproduction tax is something I’ve beenfocused on for several months. It seems tome that that number is not easily obtain-able from the Department of Revenue. Iwould have hoped that number would havebeen easily obtained and then the debatewould focus upon more what that numberis in relationship to the gross oil produced.In other words production tax value afterroyalty, transportation, operating expendi-ture, and capital expenditure deduction.Looking at that as profit oil, then whenyou know what the true net number is tothe state after deduction for all credits, wewill know what the actual or effective taxrate is with respect to profit oil.
Petroleum News: Is there anythingelse missing from the debate that youwant examined looking ahead?
Paskvan: While the effective tax rate iscertainly a critical piece of information,something else I’m looking into are issuesof throughput. We know through litigationthat the state Department of Revenue has
been in that there have been substantialamounts of information that indicate thatthe pipeline will be operational for manydecades. There is also litigation that thestate’s involved in at this time that arisesout of the March and August 2006 spills atPrudhoe Bay that deal with the substantialdecline in throughput. There is apparently acomponent of that which deals with back-out agreements and how that might affectthroughput decline.
Petroleum News: You’ve said in the pastthat you wanted to take a close look at theprogressivity segment of the state’s taxregime. What is it you’re looking for?
Paskvan: It’s my general understandingthat the industry has been saying for quitesome time that their upside has been takenaway by the magnitude of progressivity. Insome of the questions that I have submittedto the Department of Revenue, I’m hopingto receive information that will either con-firm or substantiate my present impressionthat much of what industry is saying in thatregard about high oil prices may in fact beaccurate.
In part, that’s why I had indicated in thatone speech how my analysis has been con-fined to the $75 to $95 barrel price rangebecause those were the 2010, 2011, and
2012 fiscal years under the parameters ofthe fall 2010 and spring 2011 forecasts.
So what I’ve requested are charts usingthose same parameters but taking the priceout to $200 on the high end and using thesame parameters to run them to $50 a bar-rel. That way we have a depiction of pro-gressivity at low oil prices all the way tohigh oil prices. I hope in part that will giveus objective information that will helpguide a better policy decision. If we under-stand what the effect is at $50 a barrel and$75 a barrel and $95 a barrel, then we needto have this information at $120, $140 and$160, so we can see the effects of progres-sivity and the split of profit oil at those lev-els.
Petroleum News: How do you weedthrough positions that range from every-thing is OK to do we need a change?
Paskvan: I would hope that I am notadvancing a position based upon unsub-stantiated arguments. I would hope that atthe end of the day, I’m advancing a posi-tion based upon analysis, based uponobjective information, based upon criticaland essential information being shared. Iwould hope and welcome people to cri-tique the analysis and debate the analysis. Iwould hope there is a substantive reason on
the analysis that I draw.
Petroleum News: Is throughput allabout taxes? Or is there something elsethat needs to be examined?
Paskvan: There’s a question aboutwhether there should be a focus upon treat-ment facilities because without treatmentfacilities no additional throughput canoccur. No tax change will make a differ-ence if treatment facilities are not built.I’m waiting for DNR’s information onwater handling and treatment handling onthe central North Slope and what’s beendone the last 10 or 12 years.
Petroleum News: You’ll be busy lookingat North Slope employment during theinterim. Why is the tax debate an issue forLabor and Commerce?
Paskvan: The two primary issuesadvanced for a radical change in Alaska’sproduction tax structure were employmentlosses and throughput declines, so the issueof employment is relevant to that. Itappears the Department of Labor numbersshow — rather than 1,700 or 1,800 jobslost — show that Alaska through 2010 is atan all-time high employment in the oil and
PETROLEUM NEWS • WEEK OF JUNE 19, 2011 5
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continued from page 4
PASKVAN Q&A
see PASKVAN Q&A page 17
By KRISTEN NELSONPetroleum News
Work on the environmental impactstatement for Point Thomson
development has progressed to the alterna-tives stage. The U.S. Army Corps ofEngineers, the lead agency for the EIS, saidin its June project newsletter that it has beenworking with cooperating agencies — theU.S. Environmental Protection Agency, theU.S. Fish and Wildlife Service and theAlaska Department of Natural Resources
— on nine alternatives developed fromscoping comments received in 2010.
ExxonMobil is proposing to develop theThomson Sand reservoir on Alaska’s NorthSlope, just west of the Arctic NationalWildlife Refuge. The company’s objectiveis to produce 10,000 barrels per day of con-densate, re-injecting natural gas, testing anddelineating other hydrocarbon resourcesincluding oil and natural gas in the PointThomson area.
Point Thomson is under litigationbetween the State of Alaska and the owners,
led by ExxonMobil, after the state termi-nated the unit and took back the leases,charging lack of development.
Under an agreement with DNR,ExxonMobil committed to the 10,000 bpdproject and has drilled two wells. The dateto have the project online was 2014, butExxonMobil told Petroleum News in Aprilthat with the date for completion of agencywork now a full year beyond the originaldate, there is likely to be an impact on proj-ect completion date (see story in the May 1issue).
Screening reduced optionsThe Corps described the process of
elimination by which it got to five alterna-tives for consideration in the EIS.
Phase one screening, which eliminatedfour alternatives, included consideration ofwhether the alternatives were technologi-cally feasible, allowed for future full fielddevelopment, would be able to receiverequired permits and were unique and dis-tinct from other alternatives.
One of the remaining alternatives wasrefined into two, leaving six alternatives.
Phase two screening included consider-ation of whether the alternative met theproject purpose and need and was respon-sive to issues identified in the scopingphase. That screening eliminated one alter-native, leaving five alternatives to be evalu-ated.
That evaluation will be done in thecourse of preparation of the draft EIS,which is scheduled to be released inNovember, with public meetings to followin November or early December, the Corpssaid. Details of the alternatives will beavailable when the draft EIS is released.
The Corps also said that studies in sup-port of the EIS have been completed andthose studies will be available on the website as part of the draft EIS release, includ-ing wetlands mapping and wetlands func-tional assessment, baseline assessment fornoise, visual assessment, human healthimpact assessment and analysis of previ-ously collected subsistence information.The Corps said many of the study topicswere generated during the scoping processand are a direct result of concerns heard inthat process. The EIS agency team and theapplicant ExxonMobil both participated indevelopment of the studies. Applicant stud-ies conducted in 2010 include hydrologyinvestigation, fish survey and nesting birdsurvey.
Alternatives consideredUnder alternative A, the no action alter-
native, existing wells at the Point Thomsoncentral pad would be capped and the sitewould be monitored.
Alternative B, the applicant’s proposedaction, consists of developing an onshorelayout with three pads and five wells.Gravel roads and infield pipelines wouldconnect the pads.
Offshore oil and gas resources would berecovered with directional drilling into thePoint Thomson sand reservoir fromonshore wells.
The project would include a mine site,gravel airstrip, barge dock and 22-mileexport pipeline to connect to the Badamipipeline, which connects to the Endicottpipeline and ultimately to the trans-Alaskaoil pipeline at Pump Station 1.
Alternative C, developed in response toscoping comments, would move facilitiesand infield gravel roads away from theBeaufort Sea coast, minimizing impacts tomarine resources and nearshore processes.
There would be no barging to the site,with ice roads used to transport equipmentduring construction and an airstrip and apermanent gravel road from Deadhorse toPoint Thomson to support operation of thefacility. There would be four onshore padsand five wells.
Alternative D is similar to C, with facil-ities and infield roads moved inland, butwithout an all-season road to Deadhorse.Ice roads would be used for the duration ofthe field life.
Alternative E would have a three-padand five-well onshore layout similar toalternative B. The goal of alternative E is tominimize permanent infrastructure byusing multiseason ice pads during drillingand accessing satellite pads via helicopterand seasonal ice roads.
Transportation facilities would include ashort gravel airstrip and barge dock; winteraccess to the project area from Prudhoe Baywould be by ice road. �
6 PETROLEUM NEWS • WEEK OF JUNE 19, 2011
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Point Thomson alternatives cut to 5Agencies working EIS have cut nine alternatives developed from scoping comments to five; draft EIS still scheduled for November
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PETROLEUM NEWS • WEEK OF JUNE 19, 2011 7
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Nothing morethan a blipAlberta’s bitumen production to more than double; conventionalmay see slight rise, peaking in 2013, but no new pools being found
By GARY PARKFor Petroleum News
A side from what is seen as a fleetingdeviation, Alberta remains firmly on
track to an oil sands future.Surging oil prices, accompanied by the
successful application of new drilling tech-nologies, reduced the decline in convention-al crude production last year to 0.4 percentfrom 8.6 percent in 2009 and a five-yearaverage of 4.2 percent.
Light and medium crude output in 2010actually rose by about 12,580 barrels perday to 319,000 bpd, but heavy crude vol-umes fell 1.9 percent to 140,270 bpd,according to the Alberta Energy ResourcesConservation Board, which predicts con-ventional production will rise by 6.8 percentthis year, reflecting the success of increaseddrilling and new recovery methods.
However, the regulator indicated itbelieves that the fundamental downturn inconventional output is unchanged, peakingin 2013, then retreating by 4 percent a year.
Robert Cooper, vice president of energyresearch for Mackie Research Capital, saidthat although horizontal drilling and multi-stage fracturing are improving recoveryrates from existing oil pools, no new poolsare being discovered in Alberta.
Outside of the oil sands, that makes itdifficult to build a sizeable producing com-pany in Western Canada, he said, predictingthat if oil prices remain in their currentrange, Canadian junior companies will con-centrate almost exclusively on liquids-richgas, leaving the majors to take a more diver-sified approach, he said.
On the bitumen side, the ERCB predictsnon-upgraded bitumen output will morethan double over the next nine years to 3.5million bpd, 500,000 bpd more than a recenttarget set by the Canadian Association ofPetroleum Producers.
In-situ production is predicted to over-take mined production in 2015, yielding
1.92 million bpd in 2020 from theAthabasca, Cold Lake and Peace River for-mations, while mined volumes are expectedto reach 1.54 million bpd at the end of theforecast period.
In-situ output last year was 755,430 bpd,up almost 92,000 bpd, and mined produc-tion was 857,000 bpd, an increase of 31,450bpd.
Synthetic crude production, mainly frommining operations, is predicted to rise to1.47 million bpd in 2020 from 795,300 bpdin 2010.
The report forecast that by 2020, 47 per-cent of bitumen will be upgraded in Albertacompared with 58 percent last year becauseof an expected narrowing of the price dif-ferential between bitumen and light crude to26 percent over the 2011-20 period com-pared with an average 30 percent over thepast five years.
The ERCB said Alberta’s established oilreserves at the end of 2010 were 170.8 bil-lion barrels, including 1.5 billion barrels ofconventional crude, or one-third ofCanada`s remaining conventional reserves.
It said only 4.3 percent of original estab-lished crude bitumen reserves have beenproduced since the start of commercialoperations in 1967.
The report said producers drilled 2,308successful oil wells in 2010, an increase of143 percent from 2009 and the most since2005.
The ERCB placed conventional gasreserves at 36.4 trillion cubic feet at the endof 2010, but said it has embarked on a large-scale assessment of Alberta’s shale gaspotential that could boost the numbersmaterially.
Continuing a trend over the past 27years, gas reserve additions of 2.9 tcf lastyear failed to keep pace with production of4.1 tcf. �
GOVERNMENTBLM seeks advisory council nominees
The Bureau of Land Management is extending the nomination and applicationperiod for the Alaska Resource Advisory Council. BLM said June 10 that a 30-dayextension period closes July 8.
BLM is seeking qualified individuals to fill five RAC positions in the follow-ing categories: representatives of transportation or rights-of-way, off-highway vehi-cle use, or commercial recreation (two positions); representatives of nationally orregionally recognized environmental organizations, archaeological and historicalorganizations, and dispersed recreation activities (two positions); and a representa-tive of the public-at-large, employees, or academic institutions who are involved innatural resources (one position). Applicants must be Alaska residents.
BLM said the goal of the council’s diverse membership is to “achieve a balancedoutlook the BLM needs to manage public lands for multiple uses under its mis-sion.”
The council provides advice and recommendations to BLM on land manage-ment issues for 75 million acres of public lands in Alaska, including the 23 millionacre National Petroleum Reserve-Alaska, the 1 million acre White MountainsNational Recreation Area, the Anchorage Campbell Tract Facility, several NationalWild and Scenic Rivers, scenic highways and trail systems, and much more.
Council members serve three-year terms and may apply for reappointment.There is no salary, but travel expenses are reimbursed.
Application/nomination packets are available by calling BLM at 907-271-3335or on the website at www.blm.gov/ak/st/en/res/rac.html.
—PETROLEUM NEWS
Contact Gary Park through [email protected]
By WESLEY LOYFor Petroleum News
M arathon Oil has lost a court battlewith the state over royalty pay-
ments on natural gas produced from anAlaska field.
In a 17-page opinion issued June 10, theAlaska Supreme Court affirmed a stateSuperior Court ruling that went againstMarathon.
The case has to do with royalty pay-ments on production from the Ninilchikgas field on the southern Kenai Peninsula.Marathon began production from the fieldin 2003.
Marathon sued the Alaska Departmentof Natural Resources in 2008 after stateofficials partially refused the company’srequest to change the method of calculat-ing royalty payments owed on its Ninilchikgas production.
Calculating royaltiesThe Supreme Court opinion does not
specify the amount of money at stake forMarathon in its royalty dispute with thestate.
Under the Alaska Land Act of 1959, theyear Alaska became a state, DNR isrequired to collect a royalty of at least 12.5percent of the value of oil and gas pro-duced on land leased from the state.
According to the most recent stateDivision of Oil and Gas annual report
(2009), Marathon’s Ninilchik unit had roy-alty gas production of 8.03 billion cubicfeet from 2003 through 2008, and royaltygas revenues of $35.5 million.
State records show Marathon holds a 60percent interest in the Ninilchik unit, withUnion Oil Co. of California holding theremaining 40 percent.
The Supreme Court opinion explainsthat gas producers on state land must makeroyalty payments calculated using either“higher of ” pricing or contract pricing.
Determining the value of gas to calcu-late royalties usually is done through“higher of ” pricing, the opinion says. Thevalue of the gas is deemed to be the high-est of four possible prices, and arriving atthe result “involves sophisticated calcula-tions using market data and the prices ofother producers.”
Lessees must pay royalties on or beforethe last day of the calendar month follow-ing the month in which the gas is pro-duced.
“But the four values needed to calculatethe royalty under ‘higher of’ pricing areusually not determined until several yearsafter the time of production, after DNRperforms an audit,” the Supreme Courtopinion says.
The audit often results in an upwardadjustment of a lessee’s royalty liability,the opinion says.
Marathon’s requestProducers may pay royalties using the
“potentially more favorable” contract pric-ing method, but they must receive permis-sion from DNR, the opinion says.
Under contract pricing, the price atwhich a producer sells gas to Alaska utili-ties is the basis for calculating the state’sroyalty.
“In 2008, before completion of theaudit to determine the ‘higher of’ royaltypayment for 2003-2008, Marathonrequested contract pricing from DNR,” theopinion says. “Marathon requested con-tract pricing for the period of 2008 onwardand sought retroactive application of con-tract pricing to the 2003-2008 period.DNR approved Marathon’s request forcontract pricing from 2008 onward butdenied the request to apply contract pricingto production prior to 2008.”
Marathon appealed to the SuperiorCourt, which upheld DNR’s ruling.
The company then appealed to theSupreme Court, making three arguments:DNR was wrong to deny the request toapply contract pricing retroactively; DNRshould have put its policy into regulation;and DNR’s treatment of Marathon violateddue process.
“The question presented is whether alessee must apply for contract pricingbefore production actually occurs,” theSupreme Court opinion says.
The court conceded the statute on this isambiguous.
But the court held against Marathonand in favor of the state on all points, writ-ing in part that Marathon’s due-processrights were not violated and that DNR hasreasonably applied its policy againstretroactive contract pricing for at least adecade. �
8 PETROLEUM NEWS • WEEK OF JUNE 19, 2011
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� F I N A N C E & E C O N O M Y
Marathon loses AlaskaSupreme Court caseDNR upheld on decision to partially deny company’s request to usedifferent royalty calculation method for Ninilchik gas production
Contact Wesley Loy at [email protected]
By ERIC LIDJIFor Petroleum News
The National Petroleum Reserve-Alaska is getting a lot of attention
these days.President Obama recently announced
plans to hold annual lease sales in the 23million acre swath of northwest Alaskaand now a Congressional leader is propos-ing legislation designed to convert thoselease sales into actual production of oil andnatural gas.
House Natural Resources CommitteeChairman Doc Hastings, R-Wash., recent-ly introduced the National PetroleumReserve Alaska Access Act to “unwind thetangled web of government regulationsthat prevent us from creating jobs and har-nessing our own American energyresources in Alaska,” he said in a state-ment. “President Obama supports issuingleases in the NPR-A, which is a positivestep; but permits needed to turn leases intoreal energy remain stalled in bureaucraticinaction. What good is issuing leases andproducing oil and natural gas if they can’tbe delivered to the American people?”
In addition to setting out some guide-lines for how those lease sales would pro-ceed, the legislation focuses on streamlin-ing the permitting process and preparingfor the road and pipeline network thatwould be required if ongoing productionbegins in the NPR-A.
The legislation would give the U.S.Department of the Interior six months tocraft regulations for NPR-A permitting ona quicker timetable, such as acknowledg-ing permit applications within five daysand issuing permits within 60 days(although the only recourse for takinglonger is a letter explaining the reason forthe delay). The bill also sets a 60-day time-line for issuing permits for transportationinfrastructure on leases that already have afederal drilling permit and a six-monthtimeline on other federal leases.
The legislation would require theInterior Department to ease the way forfuture development by preparing a planwithin nine months that pre-approvesrights of way so that every tract in theNPR-A is within 25 miles of pipeline androad rights of way.
It would also require the U.S.Geological Survey, in consultation withthe State of Alaska and the AmericanAssociation of Petroleum Geologists, tocomplete a new assessment of the techni-cally recoverable oil and gas resources inthe NPR-A within two years.
The USGS most recently studied the
NPR-A in 2010, dropping its estimates forboth the technically recoverable oil andnatural gas based on a decade of industryexploration.
The House Natural ResourcesCommittee scheduled a hearing on the leg-islation — including planned testimonyfrom Alaska Department of NaturalResources Deputy Commissioner JoeBalash — on June 16, after PetroleumNews went to print.
Hastings announced details of his legis-lation during a daylong tour of energy sitesacross northern Alaska — including stopsat the trans-Alaska oil pipeline, in NPR-Aand in the Native village of Kaktovik —with Gov. Sean Parnell and Rep. DonYoung.
Stymied again and againThe NPR-A has long frustrated the oil
industry.President Warren G. Harding formed
the 23 million acre reserve in 1923 asNaval Petroleum Reserve No. 4, an unde-veloped stockpile of fossil fuel for militaryuse.
The USGS and the U.S. Navy drilleddozens of wildcats across the region in the1940s and 1950s, uncovering promisingfinds like the Umiat oil field and the WolfCamp prospect, but ultimately decided theeconomics of developing those plays did-n’t pan out.
The government began holding regular
lease sales in NPR-A starting in the late1990s and over the following decade fivecompanies drilled a total of 29 explorationwells.
But all five of those companies havesince cooled on NPR-A.
Following two NPR-A wells in 2001,BP stopped its traditional explorationefforts in Alaska to focus on producingmore oil from its existing units across theNorth Slope.
After drilling some of the most remotewildcats in recent Alaska history, Talismansubsidiary FEX relinquished its NPR-Aacreage after unsuccessfully trying to mar-ket it. The French company Total, FEX’spartner on some of those wells, also scaledback in Alaska.
Anadarko Petroleum drilled theAltamura No. 1 in 2002, its first operatedwell in Alaska, but didn’t proceed to devel-opment. The company drilled at Gubik,southeast of NPR-A, in 2009 as part of amultiyear search for natural gas, but hasn’tfollowed up in the years since.
ConocoPhillips, responsible for 20 ofthose 29 exploration wells, remains active-ly interested in developing the leases itholds in the NPR-A with Anadarko, locat-ed just beyond the Colville River, but can-not get a key federal permit required tomove ahead. �
PETROLEUM NEWS • WEEK OF JUNE 19, 2011 9
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� G O V E R N M E N T
Congress considering NPR-A legislationRep. Hastings proposes bill to streamline permitting and require federal government to prepare road and pipeline rights of way
“What good is issuing leases andproducing oil and natural gas if
they can’t be delivered to theAmerican people?”
—Rep. Doc Hastings
Contact Eric Lidji at [email protected]
By ROSE RAGSDALEFor Petroleum News
R ather than bemoaning the thinningranks of college students studying
geosciences in the United States like mostof us, a group of energy companies inSouthwest Texas joined educators and phi-lanthropists in doing something about it.
Seven years ago, they created a sum-mer program known as GeoFORCE Texasthat is designed to expose inner-city andminority high school students to theexcitement of learning about the naturalenvironment.
The goal: To inspire these youngstersto tackle difficult high school science andmath courses in preparation for pursuingcollege degrees in science, engineeringand math with an eye toward meeting theworkforce shortfalls forecast to occur asbaby boomers retire.
Today, GeoFORCE has more than 500
student participants and nearly 200 gradu-ates who are college students. Of thisgroup, 81 percent are minorities.
The GeoFORCE success story hasinspired Alaska companies and educatorsto launch a similar program at theUniversity of Alaska Fairbanks as early asJune 2012.
“Many of us hear every day when mathand science curriculums are discussed thatthe country needs more science- and engi-neering-oriented students coming out ofuniversity,” said Ed Duncan, president andchief operating officer of Great BearPetroleum LLC.
Great Bear, a newcomer to the Alaskaoil patch, is an independent with offices inAustin, Texas. Last October, the companyoffered more than $8 million in apparenthigh bids for 105 tracts covering morethan 500,000 acres in an Alaska NorthSlope areawide oil and gas lease sale.
Focused on drilling for unconventionaloil in source rocks on the North Slope,Great Bear is apparently equally focusedon making a difference in the lives ofyoung Alaskans.
“My wife and I live our lives with ahigh social conscience,” explainedDuncan in a recent interview.
Great Bear recently opened anAnchorage office. But Duncan and hiswife, Karen Bryant Duncan, who is GreatBear’s vice president and corporate gener-al counsel, had already spent monthsspreading the word in Alaska aboutGeoFORCE.
“We have a very, very strong commit-ment to leave a lasting legacy to improvethe lives of the next generation comingbehind us. Great Bear’s mission statementreflects Karen and my core values.”
A lot at stakeAs our current work force trained in
science, technology, engineering and mathages out of the system, young people willbe needed to replace these workers.
Meeting this challenge will be difficultbecause dramatically fewer Hispanics,African Americans and Native Americansgraduate from high school than membersof the majority population. In addition, agrowing percentage of our youth areminorities.
Using the latest census figures, USAToday reports that more than 48 percent ofchildren in the United States under agefive are now minorities. For Alaska, thesituation is arguably more desperate.
Graduation rates in the 12-state Pacificand Northwest regions for AmericanIndians and Alaska Natives average 46.6percent, substantially lower than compara-ble graduation rates for all otherracial/ethnic groups, including whites(69.8 percent), Asians (77.9 percent),Blacks (54.7 percent) and Hispanics (50.8percent), according to a 2010 study by TheCivil Rights Project/Proyecto DerechosCiviles at UCLA’s Graduate School ofEducation and Information Studies.
Lack of college readinessEven worse, minority students who do
earn high school diplomas pursue collegemath and science degrees in far fewernumbers than do Caucasian- and Asian-Americans. A big problem is the lack ofcollege readiness among minority stu-dents.
One priority of GeoFORCE Texas was
10 PETROLEUM NEWS • WEEK OF JUNE 19, 2011
� F I N A N C E & E C O N O M Y
Making a geoscience difference in AlaskaGreat Bear Petroleum joins UAF, others in launching Alaska program for rural high school students based on Texas GeoFORCE model
Students from GeoFORCE’s Southwest Texas region hike into the caldera of Oregon’sNewberry Volcano, the largest shield volcano in the continental United States. The studentsobserved a recent lava flow that is made up almost entirely of obsidian or volcanic glass.
CO
URT
ESY
OF
GEO
FOR
CE
TEX
AS
see GEOFORCE page 12
PETROLEUM NEWS • WEEK OF JUNE 19, 2011 11
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� N A T U R A L G A S
‘Are We Entering a Golden Age of Gas?’New report from International Energy Agency sketches scenario that could make natural gas a much bigger energy player by 2035
By WESLEY LOYFor Petroleum News
Natural gas could become much moreimportant by 2035, potentially achiev-
ing a 25 percent share in the global energymix, says a new report from the Paris-basedInternational Energy Agency.
The IEA sketches out this scenario in aspecial report released June 6 titled, “Are WeEntering a Golden Age of Gas?”
In a press release, IEA ExecutiveDirector Nobuo Tanaka said some remark-able developments had been seen in naturalgas markets in recent months, indicating “astrong potential for gas to take on a largerrole.”
The report presents a sweeping and high-ly readable overview of the global supplyand demand picture, and examines such fac-tors as the rise of unconventional gas,China’s huge energy appetite, the impact ofJapan’s Fukushima nuclear disaster, andgreater use of natural gas to fuel automo-biles.
Over its 127 pages, the report makes nomention of Alaska, which has enormousreserves of stranded gas, and the word Arcticappears only twice in the main text.
New assumptionsThe “golden age of gas scenario” incor-
porates new assumptions that “underpin amore positive future outlook for gas.”
A fundamental point the IEA reportmakes is that the world has a great deal ofgas available, enough that it’s worth asking
whether demand will keep pace with supply.“Conventional recoverable resources are
equivalent to more than 120 years of currentglobal consumption, while total recoverableresources could sustain today’s productionfor over 250 years,” the report says.
Under the IEA scenario, gas use will riseby more than 50 percent to reach 5.1 trillioncubic meters in 2035.
“The share of natural gas in the globalenergy mix increases from 21% to 25% in2035, pushing the share of coal into declineand overtaking it by 2030,” the report says.
Unconventional gas ‘revolution’Unconventional gas resources include
tight gas, shale gas, coalbed methane andgas hydrates.
“Unconventional gas may hold the key toexpanding the long-term role of gas in theglobal energy mix,” the report says.
“Already, the unconventional gas revolutionhas reshaped the market in the United Statesand lastingly affected global gas markets.”
Unconventional gas resources are nowestimated to be as large as conventionalresources, the report says.
“Conventional gas will continue to makeup the greater part of global production, butunconventional gas becomes increasinglyimportant, meeting more than 40% of theincrease in demand,” the report says.
Of the unconventional gas types, shalegas and coalbed methane account for mostof the increase in production under the IEA’sgolden age scenario.
“We project that the share of shale gas inglobal gas production reaches 11% in 2035,while that of CBM reaches 7% and tight gas6%,” the report says.
Unconventional gas production currentlyis concentrated in the United States andCanada. Poland leads the way for shale gas
in Europe.“In the United States, soaring shale gas
production has promoted new south-northlinks to transport the gas from the areas ofsupply to the principal markets,” the reportsays.
“A key element in the success of NorthAmerican shale gas production has beencombining cost-effective horizontal drilling,a technique developed over the last 30 years,with hydraulic fracturing, which has beenpracticed since the 1940s.”
The report acknowledges, however, themajor environmental challenges shale gasfaces.
Power generation leadsUnder the IEA scenario, power genera-
tion remains the dominant sector for gasdemand, replacing some coal in China, Indiaand the United States.
The scenario sees the share of natural gasin electricity generation increase from 21percent to 24 percent in 2035.
“The expectation that gas prices in theUnited States will remain low for some time,and the possibility of future action to reducegreenhouse-gas emissions (even though nomandatory CO2 pricing is in place), are like-ly to contribute to continued growth in newgas-fired capacity,” the report says.
While mandatory systems to reducegreenhouse-gas emissions have not materi-alized in many countries, utilities view gas-fired generation as a lower-risk option com-pared to coal, the report says.
see GOLDEN AGE page 15
CO
URT
ESY
IEA
12 PETROLEUM NEWS • WEEK OF JUNE 19, 2011
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to meet this challenge and place moreminority students in college, pursuing sci-ence, technology, engineering, and mathe-matics — the so-called STEM fields. Ofthe two classes of GeoFORCE alumniwho have graduated from high school,176 out of 189 are attending college, and100 of these students are pursuing STEMdegrees. Not counting the undecided stu-dents, a full two-thirds of GeoFORCEgraduates started college with STEMfields in mind, and 80 percent of the stu-dents are minorities.
This compares to an average of 29 per-cent college readiness among students inSouthwest Texas schools overall as meas-ured by the state’s standardized tests.
Of the 108 GeoFORCE Texas seniorswho headed to college last fall, 61 percentreported plans to major in a science, tech-nology, engineering and mathematicsfield, including 19 percent aiming forearth sciences degrees and 9 percent pur-suing engineering.
“We are excited because we’ve seenGeoFORCE work in South Texas,” saidEd Duncan.
Secret of program’s successThe strength of GeoFORCE, say its
supporters, is its ability to give students apowerful and memorable experience thathas a lasting impact on their lives. Theongoing nature of the program — everysummer for four years throughout highschool — is also critical, as is the intensi-ty of the GeoFORCE experience, withspectacular field trips to emphasize sci-ence learning and exciting travel to newenvironments.
Students participate in summer fieldsessions, or “academies,” that occur everyyear throughout their high-school educa-tion, with each academy building upon thecurriculum of the previous year.
The academies include two- to six-dayfield trips to places such as Mount St.Helens, Florida Keys, Harpers Ferry,W.Va., Guadalupe Mountains and theGrand Canyon and several days study atthe Jackson School of Geosciences on theUniversity of Texas at Austin campus.
Each event includes a detailed guide-book, and the students take quizzes eachevening and a final exam. A minimumscore of 80 must be achieved to continuein the program.
Coordinators say this approach has hada profound effect on GeoFORCE’s partic-ipants.
“We have watched children enteringthe program at the end of eighth gradebecome young adults by the time they areseniors, having the competence not onlyto master their academic requirements butalso to impress those around them withtheir level of maturity and presence, saidDean Sharon Mosher of the JacksonSchool of Geosciences, UT Austin.
A plan for AlaskaEducators at the University of Alaska
Fairbanks, joined by the Duncans andShell Exploration, are spearheading theeffort to bring the program to Alaska.
Provost Susan Henrichs, ViceChancellor Bernice Joseph of the Collegeof Rural and Community Developmentand Dean Paul Layer of the College ofNatural Sciences and Mathematics signeda memorandum of understanding June 3with educators at UT Austin to worktoward development of an AlaskaGeoFORCE program.
Denise Wartes, who has served formany years as director of the Rural AlaskaHonors Institute at UAF, will be directorof GeoFORCE Alaska.
“UAF, in conjunction withGeoFORCE, will take what works inTexas and adapt it to Alaska,” Wartes saidin an interview June 6.
Initially, the program will target AlaskaNative students in Barrow and other NorthSlope villages and hopefully expand.
“If all goes well, we will branch outinto other rural communities acrossAlaska,” Wartes said.
Like the Texas program, GeoFORCEAlaska will work with the science andmath teachers at the rural high schoolsfrom which it draws students.
“We want the schools involved. Wewant to excite the teachers about the pro-gram, and we want to have a scienceteacher or two accompany the students onthe trips,” Wartes said.
To showcase vastly different geologicalformations, four field trips are tentativelyplanned for the Alaska program — DenaliNational Park and Preserve, the GrandCanyon, Mount St. Helens and Hawaii,she said.
UAF faculty in STEM fields andAlaska energy company executives willserve as instructors and academic advi-sors.
UAF’s geology department has vowedto assist with the program in hopes ofsparking more interest in the geosciencesamong Alaska students.
RAHI program here for 29 yearsThe organizers also envision the shorter
GeoFORCE sessions encouraging stu-dents to vie for slots in the longer RAHIprogram, which offers high school juniorsand seniors college-level writing and studyskills courses along with choices of petro-leum, engineering, business, math, chem-istry or education courses and recreationclasses.
Wartes said RAHI, after 29 years, iswell-known in Alaska’s rural communitiesand its reputation will help with introduc-ing GeoFORCE in the state’s remote vil-lages.
“The fact that they have been successfulfor one week in the summer withGeoFORCE would help them realize theycan do it for six weeks or eight weeks,”said Wartes, a longtime Alaskan who grewup on the North Slope near the ColvilleRiver.
The GeoFORCE Texas 2010 annualreport describes the program as being “nei-ther subtle nor inexpensive,” and lists morethan $2 million in the program’s kitty fromdonations, contracts and grants used tofund the program, along with several off-shoots including geo-mapping projects forsome students.
Though it is still early days, theDuncans say bringing GeoFORCE toAlaska is already winning support in thebusiness community.
“We, as a company, are making a strongcommitment to the Alaska program, andwe expect Shell will commit,” said EdDuncan.
Arctic Slope Regional Corp. alsosigned on, and Doyon Ltd. has expressedinterest, he added.
“Many of the companies with offices inAlaska also have offices in Texas, and theyare aware of the program’s success and areexcited about GeoFORCE being expandedinto Alaska,” said Karen Duncan.
“The companies see it as being directlyrelated to what they do. This is also a wayfor them to reach out and get their namesknown during the academies and the fieldtrips,” said Duncan, who is spearheadingthe program’s fund-raising effort.
For more information about making acontribution to GeoFORCE Alaska, con-tact Karen Bryant Duncan [email protected]. �
continued from page 10
GEOFORCE
Young minds are the key toAlaska’s future.
At Alaska Resource Education, our mission is to educate students and teachers about Alaska’s natural resources and how our mineral, timber and oil and gas resources are used everyday. By supporting
resource education you are ensuring Alaska’s resource industry continues to be a healthy part of our economy and help provide for
the next generation. With your help, we can inspire young minds and ignite an interest in Alaska and its resources.
The learning process never ends. Donate now. Visit our website today!
907 276 5487 www.akresource.org
By KRISTEN NELSONPetroleum News
The Alaska Department of NaturalResources’ Division of Oil and Gas
has set a date, Oct. 26, for state areawide oiland gas lease sales in the Beaufort Sea, onthe North Slope and in the North Slopefoothills and says it expects to change someterms.
“Consistent with the state’s effort toboost oil development, the lease sale termsare expected to include conditions andoptions not previously seen in lease salesfor these areas,” DNR said in a June 9 state-ment. The department said as part of itseffort to boost oil production it will beaggressively marketing its offerings, includ-ing tracts bordering the 1002 area of theArctic National Wildlife Refuge.
DNR Commissioner Dan Sullivan saidthe lease sale plans are in line with theParnell administration’s goal to increaseproduction through the trans-Alaska oilpipeline to 1 million barrels per day withina decade.
“In Alaska, we have a massive resourcebase, a favorable political and investmentclimate, particularly as we continue to pur-sue tax reform, and a strong commitment toenvironmental protection,” Sullivan said.
DNR said undeveloped resources onstate lands include smaller pools of conven-tional oil, heavy and viscous oil and poten-tially enormous shale oil deposits.
The department noted that last fall’sareawide oil and gas lease sales resulted inleasing of large blocks for shale oil explo-ration, referring to some half a million acresacquired by Great Bear Petroleum south ofcurrent production.
Different Cook Inlet termsDNR did not say what conditions and
options would be included in the leaseterms, but did say it would release termsand conditions for the sales as early as pos-sible in advance of the Sept. 11 deadlinerequired in statute.
Although the state has offered some netprofit share leases in the past, recent oil andgas lease sales have been bonus bid saleswith a minimum of $5 to $10 an acre, roy-alties of 12.5 percent to 20 percent, a five-to 10-year initial lease and annual rentswhich increase through the first few years.
The Cook Inlet areawide sale scheduledfor June 22 has quite different terms forthree tracts which were formerly part of theCosmopolitan unit. Bidders must bid on allthree tracts as a bundle and the minimumbid is $50 per acre. A work commitment isrequired, including a lease plan of explo-ration to be filed within six month of leaseissuance; rental rates begin at $50 an acreand rise to $500 an acre in the fifth and fol-lowing years, until completion of the workcommitment, when the rental rate dropsback to the statutory $1 an acre in the firstyear, $1.50 in the second, $2 in the third,$2.50 in the fourth and $3 in the fifth andfollowing years.
The work commitment requires comple-tion of a well evaluating the stratigraphicinterval correlative to the oil reservoir dis-covered in the Starichkof State No. 1 wellbefore the end of the fourth year of thelease.
State’s strategyDNR said the state’s five-part strategy to
achieve the governor’s 1 million bpd goalincludes enhancing the state’s global com-
petitiveness, chiefly through oil tax reformsand where appropriate new infrastructureand royalty relief; ensuring an efficient, reli-able permitting system; catalyzing the nextphases of North Slope development includ-ing federal onshore and offshore resources
and “development of the state’s massivenatural gas, conventional and unconven-tional oil resources”; building partnershipsnecessary for development of the state’sresources while protecting its interests andenvironment; and promoting the state’sresources to world markets.
The Parnell administration has asked forcooperation from the federal government toachieve increased access to and productionfrom federal lands. Sullivan said the statewill take a leadership role on its own landby offering state leases close to highlyprospective federal acreage such asANWR’s 1002 area.
One impact of state leasing and eventualproduction close to federal acreage such asANWR could be drainage of oil from underfederal land. The Sourdough discoverysouth of Point Thomson, on the StainesRiver across from ANWR, is believed to bepart of a reservoir stretching under the 1002area.
If oil migrated from the ANWR portionof the reservoir to wells drilled on stateacreage, legal experts have said the rule ofcapture would govern; since the ANWR1002 area is not available for leasing, thefederal government has no opportunity torecover oil through leasing and drilling thatacreage.
On the western side of the North Slope,in the National Petroleum Reserve-Alaska,the federal government does lease itsacreage, so in an analogous situation there,tracts on both state and federal acreagewould be available for leasing, drilling andunitization, and the federal governmentwould receive royalties on oil produced.
The fall areawide lease sales are tenta-tively scheduled for Oct. 26 in the WildaMarston Theatre at the Z.J. Loussac Libraryin Anchorage. �
PETROLEUM NEWS • WEEK OF JUNE 19, 2011 13
� L A N D & L E A S I N G
DNR: terms to change for O&G salesDivision of Oil and Gas says Beaufort Sea, North Slope, foothills sales will contain conditions, options, not previously seen
On the WebSee previous Petroleum News coverage:
“Fortune Hunt Alaska: Tapping ANWRfrom Pt. Thomson,” in May 8, 2011, issue atwww.petroleumnews.com/pnads/771388248.shtml“Tapping ANWR from PTU,” in April 27,2008, issue atwww.petroleumnews.com/pnads/846118906.shtml“Unlocking ANWR,” in Jan. 12, 2003,issue atwww.petroleumnews.com/pnads/428679335.shtml
Contact Kristen Nelson at [email protected]
14 PETROLEUM NEWS • WEEK OF JUNE 19, 2011
Notice of Publ ic Hearings
In accordance with National Environmental Policy
Act (NEPA) requirements, the Bureau of Ocean
Energy Management, Regulation and Enforcement
will hold public hearings June 21–29 to accept
comments on a Revised Draft Supplemental
Environmental Impact Statement (SEIS) for
Chukchi Sea Oil and Natural Gas Lease Sale 193,
held in February 2008.
Lease Sale 193 was challenged in court by a coalition of environmental
groups and Alaska Native organizations. On July 21, 2010, the Alaska
concerns related to the Environmental Impact Statement prepared prior to the
sale. The bureau drafted the SEIS to address these concerns, and then revised
the draft to incorporate a new analysis of a hypothetical Very Large Oil Spill
scenario.
BOEMRE is accepting public comments on the Revised Draft SEIS
through July 11, 2011. These comments will be considered when the bureau
prepares the Final SEIS and a Record of Decision regarding the lease sale.
Public Hearing Schedule (all meetings begin at 7 p.m.)
June 21: Kotzebue (NW Arctic Borough Assembly Chambers)
June 22: Point Hope (City Qalgi Center)
June 23: Fairbanks (Westmark Hotel & Conference Center)
June 24: Wainwright (R. James Community Center)
June 27: Barrow (Inupiat Heritage Center)
June 28: Point Lay (Community Center)
June 29: Anchorage (Wilda Marston Theatre)
All public materials relating to the Revised Draft SEIS, including a more
detailed explanation of the history and circumstances, and instructions for
submitting comments electronically or via mail, can be found at:
http://alaska.boemre.gov/ref/EIS%20EA/Revised_2010_034/rev2010_034.htm
ALTERNATIVE ENERGYOrmat moves ahead on Mt. Spurr drilling
Following the successful completion of a small bore drilling program in 2010 toseek a geothermal energy source under the flanks of Mount Spurr, an active volcanoon the west side of Alaska’s Cook Inlet, Ormat Technologies plans to drill some addi-tional intermediate-depth core holes during the summer of 2011, the company told thePacific Section, American Association of Petroleum Geologists, on May 10. And inearly June the Alaska Oil and Gas Conservation Commission issued the company witha permit for drilling at the Mount Spurr geothermal prospect.
Ormat hopes to be able to establish a geothermal power plant at Mount Spurr, todeliver electricity into the Alaska Railbelt electricity grid. The company has been con-ducting ground and aerial surveys, surface sampling and small bore drilling on 15state geothermal leases at Mount Spurr and has said that its exploration has indicatedthe likely existence of a geothermal source adequate for power generation. In JanuaryOrmat told the Alaska House Resources Committee that it had drilled two core holesto depths of about 1,000 feet in 2010, and that it planned to drill to depths of about4,000 feet in 2011, with the possibility of drilling a geothermal production well in2012. In its presentation to AAPG, the company said that the purpose of the 2011drilling would be to define a geothermal reservoir with appropriate temperatures, sub-surface fluids and rock permeability.
However, the company has also said that it needs a power purchase agreement witha Railbelt power utility, to underpin the further funding of its Mount Spurr project.Power from Mount Spurr would likely cost a little more than the power the geother-mal energy would currently replace in the Railbelt grid, but the cost of the geothermalpower would remain constant over a 20-year period, the company has said.
—ALAN BAILEY
� E X P L O R A T I O N & P R O D U C T I O N
Eyeing the possibilitiesat Kotzebue basinConsultant, NANA say the Kotzebue basin in northwest Alaskahas large prospects and potential for natural gas and possibly oil
By ALAN BAILEYPetroleum News
Only two wells have ever been drilled inthe 80-mile by 350-mile Kotzebue
basin, under the Kotzebue Sound and someadjacent lowlands, immediately north ofAlaska’s Seward Peninsula. But this remotebasin, sometimes referred to as the Selawikbasin, has significant potential for the dis-covery of natural gas, and perhaps oil,according to a presentation by NANARegional Corp. and Terence Eschner of oilconsulting firm Sarlan Resources at thePacific Section, American Association ofPetroleum Geologists, on May 11.
NANA, the Native regional corporationfor northwest Alaska owns the mineral rightsto the onshore portions of the basin and hasleased exploration rights on some of its landto California-based Trio Petroleum, a com-pany that since 2009 has been planning todrill some oil and gas exploration wells in itsKotzebue basin leases.
Cook Inlet comparisonEschner told the AAPG conference that
the basin, about the same size as the CookInlet basin in Southcentral Alaska and withsomewhat analogous geology, is up to20,000 feet thick. The basin is filled withsediments of Tertiary and probablyCretaceous age, and contains many largeexploration targets, Eschner said. Geologiststhink that the basin formed as a result ofgeologic faults wrenching open a depressionin the Earth’s crust.
The two wells in the basin, drilled byStandard Oil of California, or Socal, in the1970s, used onshore locations to test thestratigraphy of the basin’s rock sequence.One of those wells, the Nimiuk well, islocated on the Baldwin Peninsula near thetown of Kotzebue, while the other is onCape Espenberg, on the north side of theSeward Peninsula. Both of these stratigraph-ic test wells demonstrated the presence ofrocks conducive to the operation of a petro-
leum system in the basin, with river-lainsandstones and conglomerates of Tertiaryage that could form excellent oil or gasreservoirs; shales and coals that could act ashydrocarbon sources; and shales that couldseal hydrocarbons in reservoir rocks,Eschner said.
Oil at depth?Source rock samples showed good to
high organic material content, with kerogensin the material being primarily of a type thatwould generate natural gas, Eschner said.However, with neither of the wells beingdrilled in the deepest parts of the basin, thereis no rock data available for depths belowabout 8,000 feet, he said. But projections ofthe likely subsurface temperatures indicatethat the source rocks could be cooked intooil generation at depths between 6,000 and13,000 feet, he said. That leads to the possi-bility of biogenic gas, formed from thedecomposition of organic material in coalseams, at depths less than 6,000 feet, withgas formed by thermal action, and possiblyoil, deeper in the basin, Eschner said.
About 1,500 miles of 2-D seismic data,shot by Socal, coupled with gravity andaeromagnetic data provide insights into thestructure of the basin.
And these data sources have revealedabout 30 prospects, some of them very large,including major folds in the rock strata, faultblocks and potential hydrocarbon trapsformed from the juxtaposition of reservoirand seal rocks.
For example, a prospect near CapeEspenberg consists of a shallow, 70-square-mile dome, and another prospect, calledAmaouk Creek, consists of a fold in the rockstrata encompassing a 27-square-mile area.This latter prospect is larger than either thehuge Beluga River gas field or the NorthCook Inlet gas field in the Cook Inlet basin,Eschner said. �
Contact Eric Lidji at [email protected]
By KRISTEN NELSONPetroleum News
The Cook Inlet Region Inc. Fire Islandwind project is poised to move ahead,
albeit on a smaller scale than CIRI original-ly envisioned.
On June 15 the board of directors ofChugach Electric Association approved anagreement to purchase power from FireIsland Wind LLC, a wholly owned sub-sidiary of CIRI formed to develop and sellwind power from Fire Island. Eleven windturbines will be installed on the southernend of Fire Island, offshore Anchorage.
CEA would take up to 17.6 megawatts ofpower at a net price of $97 per megawatt-hour for 25 years, beginning Jan. 1, 2013.CEA said it agreed to buy the power at$107.85 per megawatt hour and Fire IslandWind LLC agreed to pay a system integra-tion charge of $10.85 per megawatt hour tohelp integrate the power into the system.
Fire Island Wind estimates energy outputat approximately 48,500 megawatt-hoursper year — equivalent to about 4 percent ofCEA’s retail sales in 2010.
Negotiations between CEA and CIRIbegan in the summer of 2010.
CIRI initially planned a 52.8 megawattwind farm, with 33 wind turbines, but theproject was downsized to fit CEA’s retailcustomers when other Railbelt utilitiesfailed to take a portion of the output.
CIRI needs to formally approve the con-
tract, as does the Regulatory Commissionof Alaska.
The price issueCIRI addressed the consumer price issue
at an Anchorage Chamber of Commercemeeting last November.
Suzanne Gibson, CIRI’s senior directorfor energy development, said that while theinitial price of electricity from the windfarm exceeds the current price of electricityin Southcentral Alaska, the rising price ofnatural gas will within a few years makegas-fired power more expensive than windpower.
And with Southcentral utilities anticipat-ing importing liquefied natural gas to sup-plement local gas, the area would then beopen to paying prices pegged on worldwideLNG prices, which are much higher thanlocal gas prices.
A recent study commissioned by the util-ities estimated the cost of drilling and devel-opment needed to maintain local gas sup-plies at more than $2 billion, and a new gassupply agreement signed last year betweenCEA and Marathon Oil set gas prices at aninflation-indexed range from $5.90 to $8.90per million Btu.
Consumers are currently paying some$7 per million Btu, plus gas distributionand service fees. �
PETROLEUM NEWS • WEEK OF JUNE 19, 2011 15
The Alaska Humane Society’s “Adopt-A-Cat” program is a no-kill, non-profit cat sheltercurrently caring for more than 200 cats and kittens that live cage-free at this facility. We arestaffed entirely by volunteers and funded entirely by donations.
The facility is located at 1224 E. 76th Avenue, Anchorage at the back of the complex.For directions to the shelter call 907-344-8808.
Hours of Operation:Monday thru Friday, 7 p.m. - 9 p.m.Saturday & Sunday, 3 p.m. - 6 p.m.
To learn more about the “Adopt-A-Cat” program, please visit www.adopt-a-cat.org.
GOVERNMENTBOEMRE tightens operations oversight
In the ever-widening wake from the Gulf of Mexico Macondo well blowout,the Bureau of Ocean Energy Management, Regulation and Enforcement is takingfurther steps to tighten its oversight of oil and gas operation on the outer conti-nental shelf. Having already said that it will station personnel on offshore rigs todirectly observe offshore oil and gas drilling, on June 13 the agency announcedthat it will begin to use multiple-person teams, rather than individual inspectors,for the inspection of offshore oil and gas operations. The new teams will be ableto simultaneously carry out thorough inspections of multiple operations, BOEM-RE said.
“We are bolstering our inspection program with additional resources and newapproaches,” said BOEMRE Director Michael Bromwich. “As more inspectorsare hired, we will be deploying multi-disciplinary inspection teams instead ofindividual inspectors, providing broader oversight to ensure that offshore opera-tors are complying with federal regulations and conducting their operations in asafe and environmentally responsible manner.”
The National Offshore Training Center, recently established by BOEMRE, hasdeveloped a formal training curriculum for the agency’s offshore inspectors, withone course already in operation and 24 additional courses to be developed in thecoming months, BOEMRE said.
“We are extremely proud of the steps we have taken to bolster our inspectionsprogram,” Bromwich said. “We believe that establishing a formal curriculum forinspector training is central to developing a more rigorous and consistent inspec-tions program across the agency.”
Chief Environmental OfficerAnd in a separate initiative, BOEMRE is creating a new position of Chief
Environmental Officer to provide assurance that resource development decisionspay adequate attention to environmental considerations, BOEMRE DeputyDirector Walter Cruickshank announced June 9 during a talk on future OCS oiland gas regulation, as part of Capitol Hill Oceans Week in Washington, D.C. OnOct. 1 BOEMRE will split into two new agencies, the Bureau of OceanManagement (or BOEM) and the Bureau of Safety and EnvironmentalEnforcement (or BSEE), Cruickshank said.
BOEMRE is looking for an environmental scientist of national standing to fillthe chief environmental officer position, which will be located within BOEM, hesaid.
—ALAN BAILEY
� A L T E R N A T I V E E N E R G Y
CEA board approvesFire Island terms
Contact Kristen Nelson at [email protected]
Many countries are rethinking the role ofnuclear power in the wake of the Fukushimanuclear disaster in Japan.
“To the extent that future nuclear powercapacity is lower than previously expected,demand for gas in power generation is like-ly to increase,” the IEA report says.
Regional, environmental considerationsWhere is the future of gas most robust?“Gas is a particularly attractive fuel for
countries, such as China and India, and theMiddle East region that are seeking to sat-isfy rapid growth in fast-growing cities,”the report says. “These emergingeconomies will largely determine the extentto which gas use expands over the nextquarter of a century.”
China is aggressively promoting gas,and it will be not only a prodigious gas userbut also one of the world’s largest gas pro-ducers.
The IEA report says the gas marketwon’t become truly globalized, and thatNorth America will remain largely self-suf-ficient and “essentially isolated from inter-regional trade.”
While gas is a cleaner fossil fuel com-pared to oil and coal, gas is not an environ-mental cure-all for the planet, the reportsays.
“An increased share of natural gas in theglobal energy mix is far from enough on itsown to put us on a carbon emissions pathconsistent with an average global tempera-ture rise of no more than 2°C,” the reportsays.
Find the entire IEA report atwww.iea.org. �
continued from page 11
GOLDEN AGE
Contact Wesley Loy at [email protected]
16 PETROLEUM NEWS • WEEK OF JUNE 19, 2011
ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS
All of the companies listed above advertise on a regular basis with Petroleum News
Companies involved in Alaska and northern Canada’s oil and gas industry
AAcuren USAAECOM EnvironmentAir LiquideAlaska Air CargoAlaska Analytical LaboratoryAlaska Cover-AllAlaska Division of Oil and Gas . . . . . . . . . . . . . . . . . . . . . . .5Alaska Dreams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Alaska Frontier ConstructorsAlaska Interstate Construction (AIC) . . . . . . . . . . . . . . . . . . .8Alaska Marine LinesAlaska Railroad Corp.Alaska Rubber Alaska Steel Co.Alaska TelecomAlaska Tent & TarpAlaska West ExpressAlaskan Energy Resources Inc.Alpha Seismic CompressorsAlutiiq Oilfield Solutions . . . . . . . . . . . . . . . . . . . . . . . . . .4,14American Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Arctic ControlsArctic FoundationsArctic Slope Telephone Assoc. Co-op.Arctic Wire Rope & SupplyASRC Energy Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Avalon Development
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Oil Patch BitsCrowley receives 2010 Shipping of America award
Crowley Maritime Corp. said June14 that 39 of its vessels and theircrews were awarded the 2010 Jones F.Devlin Award for safety during thismonth’s Chamber of Shipping ofAmerica annual safety awards lunch-eon. Together these vessels represent160 total years without a lost time inci-dent, reflecting Crowley’s commitmentto safety.
The Chamber of Shipping ofAmerica represents 33 U.S.-based com-panies that own, operate or charter oceangoing tankers, container ships and other mer-chant vessels engaged in both the domestic and international trades and other entities thatmaintain a commercial interest in the operation of such oceangoing vessels. The CSA DevlinAward is presented each year to merchant vessels that have operated for at least two yearswithout an LTI. Crowley vessels — such as the ATB Sound Reliance/550-2, which has nothad an LTI in eight years — consistently perform above and beyond industry safety stan-
dards.“At Crowley, our number one core value is safety,” said Capt. Vic Goldberg, Crowley vice
president of marine operations. “We are honored to be recognized once again by CSA forour safety accomplishments. These awards are a testament to the devotion our seagoingemployees have for the safety of themselves and their fellow shipmates.”
Calista reports on annual meeting in Akiachak, AlaskaCalista Corp. said June 4 that its 2011 annual meeting of shareholders was held in
Akiachak, Alaska, and attended by nearly 200 people with 61.99 percent of eligible votescast either in person at the meeting or by proxy.
During the meeting four board of director seats were up for election, and in each casethe incumbents won re-election for a three-year term. The re-elected are Margaret Pohjola,Willie Kasayulie, Robert J. Hoffman and Art Heckman.
In addition two non-binding, advisory resolutions were put to vote, as well as one bind-ing resolution, Enrollment of New Post-ANCSA Shareholders Program Non-Binding AdvisoryResolution passed, Bethel Annual Meeting Location, a non-binding advisory solutionpassed, and the At Large Shareholder Representation Resolution failed to pass. Votes werecalculated and reported by the certified public accounting firm of Srameck Hightower.
see OIL PATCH BITS page 17
CO
URT
ESY
CR
OW
LEY
gas industry. It’s troubling in my mindwhen the numbers can be at all-time highemployment numbers and so manyAlaskans that I know — and the storiesthat I’m hearing from around the state —aren’t working. So I think that’s somethingI think we need to look into.
Petroleum News: It sounds like youhaven’t made up your mind what changes,if any, should be made, or do you knowwhat you want changed?
Paskvan: It would be premature. Then Iwould be only in effect wanting to getinformation that supports my view. I wantto get the facts, think about them for awhile, then come up with a way to addressthe issue. I want to have objective, reliableinformation in a format that is usable sothat everyone is operating from the sameset of data. My general belief is that in the$75 to $95 realm we don’t have punitivetax rates.
Petroleum News: So what realm shouldyou be looking at?
Paskvan: Again, that’s where the ques-
tion is: progressivity. What’s the rate at$130; what’s the rate at $150 a barrel.What impact does progressivity have atthose high levels, then as a secondary com-ponent of this analysis, there is the under-standing that the big three operators willhave a different attitude toward Alaska’s
tax system than the 26 other operators atti-tudes are toward the tax system. One has tonot just look at it as if Alaska’s tax was of asingular operator or a homogeneous indus-try. You have to look at the potentialimpacts on the large, legacy operators andthe new operators. �
PETROLEUM NEWS • WEEK OF JUNE 19, 2011 17
Do you have an extra laptop you’d be willing to part with? No, I’mnot adding to my own stockpile of consumer electronics or trying tostrike it rich on the pawn shop circuit. Rep. Les Gara is working withFacing Foster Care Alaska to collect laptops for foster youth. Laptops are a critical tool for foster youth to keep up with schoolwork and stay connected with family and friends while theyare moved to different homes and schools.
If you are interested in donating a laptop, please make sure it isfully functional and meets the following standards:
Is in excellent working order;Is no more than 4 years old;Has a word processing program;Does not need any repairs.
For more information, or to donate a laptop, please contact eitherRep. Gara’s office at (907) 465-2647, or Amanda Metivier at FacingFoster Care Alaska at (907) 230-8237.
Laptops for Foster Kids
Calista has one of the highest populations of shareholders among all of the regionalAlaska Native corporations.
Information about Calista Corp.’s 2010 activities was provided by Art Heckman, chair-man of the board of directors; Felix Hess, secretary of the board of directors; Presidentand CEO Andrew Guy; EVP and CFO Dixie Retherford; special guest President of YulistaAviation Inc. Darrell Harrison; and special guest President and CEO of Calista HeritageFoundation Debra Call. For more information visit www.calistacorp.com.
Foss vessels win 2010 Jones F. Devlin Safety AwardsFoss Maritime Co. said June 8 that the
Chamber of Shipping of America presented 53Foss tugs and barges with 2010 Jones F. DevlinAwards for outstanding safety records at theannual safety awards luncheon held this year inNew Orleans, La. The coveted awards are givento self-propelled merchant vessels that haveoperated for two full years or more without acrew member losing a full turn at watch becauseof an occupational injury. This is an increase of 11 vessels over 2009. Altogether, the Fossships achieved the equivalent of 221 years without a lost-time injury.
“Safety is a core value at Foss,” said Gary Faber, Foss president and COO. “It is a corevalue for our employees, for our customers and for all associated with the maritime com-munity. We are proud of our recognition by the Chamber of Shipping of America for ouroutstanding efforts.”
Three levels of achievement are recognized by CSA: A basic two-year award; a three-year award; and a four-year award. A special award is given annually to ships with five ormore years of accident-free operation.
Editor’s note: All of these news items — some in expanded form — will appear inthe next Arctic Oil & Gas Directory, a full color magazine that serves as a marketingtool for Petroleum News’ contracted advertisers. The next edition will be released inSeptember.
� F I N A N C E & E C O N O M Y
Billions on the lineAlberta Finance Minister Lloyd Snelgrove says key to Asia investment in Alberta ability to ship oil sands crude, LNG, to China
By GARY PARKFor Petroleum News
Chinese petroleum companies could parlay a C$13billion investment in Western Canadian oil sands
and shale gas prospects into billions of dollars of devel-opment spending, said Alberta Finance Minister LloydSnelgrove, during a trade mission by Alberta governmentand business leaders.
Between bitumen expansion and LNG opportunities,just one of China’s state-owned enterprises that hasentered the Canadian upstream in the past 18 monthscould pour C$20 billion into achieving commercial pro-duction over the next 10 years, he said, adding that othercompanies “are talking about enormous investments.”
The major proposal so far is a C$5.4 billion joint ven-ture deal by PetroChina to advance development of
Encana’s shale gas deposits, pending approval byCanada’s foreign investment regulators.
But the whole dream will evaporate if plans to ship oilsands crude and liquefied natural gas to Asia do not pro-ceed as soon as possible, Snelgrove said.
“What is critical to them is having access (in China)to what they produce in Canada,” he said.
Northern Gateway priorityIn particular, he said Enbridge’s proposed Northern
Gateway crude pipeline from Alberta to a BritishColumbia tanker port is the top priority.
Ian Wild, executive vice president of provinciallyowned ATB Corporate Financial Services, said he wastold by Chinese oil executives there is growing frustra-tion over opposition to the Enbridge project which couldplace future investment at risk.
“Their patience is running out,” he said. “They toldme specifically that C$10 billion to C$20 billion (ofspending in Alberta) is in jeopardy.”
Snelgrove said China now tops the list of future eco-nomic investment and export prospects for Alberta.
“For a century, we had the biggest market in the worldjust south of us and we didn’t have to look anywhereelse,” he said. “We probably became too complacentwith our dependency on American markets.
“Now that China is the second-biggest economy inthe world, just about everything they want, we have.”
Calgary Mayor Naheed Nenshi, a member of the del-egation, said Alberta can no longer afford to be insularand focus only on its existing markets “because, frankly,other people will come and eat our lunch.” �
Contact Gary Park through [email protected]
continued from page 16
OIL PATCH BITS
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PASKVAN Q&A
NPR-A leasing forward by up to two years.“As part of President Obama’s compre-
hensive energy strategy, Interior is movingahead with these concrete steps to continue toexpand responsible and safe domestic oilproduction,” said Interior Secretary KenSalazar when announcing the new initiatives.
Nominations BLM said that in the near future it will
publish a Federal Register notice announc-ing a 30-day comment period for its newNPR-A lease sale program. Ruth McCoard,deputy chief, BLM Office ofCommunications, told Petroleum NewsJune 16 that the Federal Register notice willreference a map showing land tracts thatBLM may offer in its 2011 lease sale. Those
tracts would be in the more northerly part ofthe reserve, in areas where lease sales havepreviously been planned, McCoard said.BLM will invite industry nominations forareas of exploration interest, as well as invit-ing general public comments on the saleproposal. The agency will then use the nom-inations and public comments to decide onwhich tracts to actually include in the leasesale, she said.
In the past year or so BLM directors haveindicated that future NPR-A lease sales mayfocus on specific areas where industry hasexpressed particular interest, rather thanoffering tracts across broad expanses of thereserve, as in the past.
—ALAN BAILEY
continued from page 1
LEASE SALES
Contact Alan Bailey at [email protected]
of regulatory decisions in the United Statesand Canada, with analysts warning thatunless there is a go-ahead Alberta facesproblems.
Ralph Glass, an economist and vicepresident at AJM Petroleum Consultants,said new supplies of Canadian oil could bedenied access to existing transportation sys-tems, with a “dramatic impact” on plans toraise oil sands output from the current 1.6million barrels per day to 3.5 million bpd by2020.
Alberta Energy Minister Ron Liepertsaid he could be kept awake at night by thefear his province will be “landlocked inbitumen … we’re not going to be an energysuperpower if we can’t get the oil out of
Alberta.”He is calling for a North American ener-
gy pact that would commit the United Statesto guaranteeing market access to Canadianoil in return for security of supply.
Keystone issuesThe American Petroleum Institute came
to TransCanada’s defense, saying the com-pany’s response to crude spills on Keystoneshould reinforce, not erode its case for theXL project.
It said TransCanada can detect problems“very quickly” and shut the pipeline down“within minutes.”
On the final day for the public to com-ment on an environmental review of theUS$13 billion XL project, API said it istime for the State Department to end aprocess that has dragged on for three years,denying jobs and taxes to the United States.
TransCanada’s Chief Executive OfficerRuss Girling found some cause for hope,predicting that, because no new issues havebeen raised in the final public commentphase, the State Department will meet itsyear-end deadline for making a decision.
Frank Verrastro, senior vice president forthe Washington-based Center for Strategicand International Studies’ energy program,said the State Department and theEnvironmental Protection Agency nowappear to be moving closer to an agreementon examining alternative XL routes andfinding ways to reduce the impact on com-munities near the pipeline.
Harold York, vice president of WoodMackenzie’s downstream consulting team,said he has noticed an easing of rhetoric thatgives him reason to believe an approvalmight be imminent.
Environmental concernsEven so, the EPA has expressed some
“significant” fears about the safety of an XLpipeline and claimed State Department offi-cials have underestimated by as much as 20percent potential lifecycle greenhouse gasemissions from the production of Alberta’soil sands, the source of crude for XL.
The EPA asked the State Department toseek “detailed descriptions” of efforts by theAlberta government and Canadian oil pro-ducers to reduce emissions before it passesjudgment on the project.
The agency also argued TransCanada’splans to detect spills by monitoring pressuredrops along the pipeline and by aerial sur-veys are inadequate and “may result insmaller leaks going undetected for sometime.”
Criticism of XL scaled new heightswhen Dennis Kucinich, a Democratic con-gressman from Ohio, likened bitumen fromthe Alberta oil sands to nuclear waste and
said the pipeline would turn the U.S. into a“sewer” for Canadian oil.
He urged his Democratic colleagues tocarefully evaluate the environmental impactof XL and pressure the State Department todelay its ruling.
“We cannot trust the oil interests to dothe right things for the economy, for theenvironment,” he said. “We saw what hap-pened when we let the oil interests get aheadof the regulation of their industry in the Gulfof Mexico.”
Having secured alliances with U.S. law-makers, environmentalists have now turnedtheir sights on the banks that would helpfinance XL, including threats to organize aboycott of Citigroup by up to 260,000 bankclients. Citigroup, while noting thatTransCanada is an “important and long-standing client,” said it is reviewing the con-cerns of various stakeholders.
The API warned the U.S. should not takefor granted its access to the oil sandsresource.
“Other nations will aggressively developthis key strategic resource for their futureenergy needs if we fail to act,” API ChiefExecutive Officer Jack Gerard said in a let-ter to Secretary of State Hillary Clinton.
Although he did not name those coun-tries, Gerard said XL should be approved“to enhance our energy and national securi-ty, preserve our global competitiveness andmaintain our role as a world economicleader.”
David Jacobson, the U.S. Ambassador toCanada, speaking at a Calgary conferenceJune 7, said Alberta will continue to exportoil to the U.S. but must clean up its resourceextraction operations.
“We’re aware of the progress that hasbeen made to address some of the environ-mental impacts in the oil sands … but, asI’ve said on many occasions, additionalimprovements are necessary.”
Enbridge spillsThe Enbridge spill occurred on a 26-
year-old pipeline from the Norman Wellsfield in the Northwest Territories to north-ern Alberta that operates well below itscapacity for 45,000 bpd.
Enbridge said no water courses arethreatened and any contaminated soil willbe removed once site conditions permit.
But, coming after an Enbridge line rup-ture last summer that released about20,000 barrels, the incident provides moreammunition for opponents of NorthernGateway.
The company is making only slowheadway in its attempt to build FirstNations’ interest in its pledge of about C$1billion in financial sweeteners through jobsand business contracts.
Documents filed with the NationalEnergy Board show Enbridge has offeredits benefits package to 35 groups and FirstNations, but as of March 31, 13 had notreceived the package and some, mostlycoastal First Nations, have refused to meetwith Enbridge. �
18 PETROLEUM NEWS • WEEK OF JUNE 19, 2011
But recent petroleum system computermodeling by scientists from computer serv-ices company Schlumberger suggests thatthe Mukluk oil may have in fact drainedsouth into the Kuparuk River field. If that iscorrect BP, with a 39 percent ownershipinterest in Kuparuk, could unknowinglyhave been producing oil originally fromMukluk, earlier knowledge of which mighthave saved a few dollars from the compa-ny’s exploration budget.
On May 11 Schlumberger’s Kenneth
Peters told the Pacific Section, AmericanAssociation of Petroleum Geologists, that anew 4-D computer model of the NorthSlope petroleum system might have pre-vented the Mukluk debacle, had the modelbeen available at the time of the Muklukdrilling. Using seismic data and coveringmuch of northwest Arctic Alaska, the modelcan play speeded up, visual images of howthe rocks appear to have been deposited andthen subsequently deformed, displaced,eroded and re-oriented as a result ofupheavals in the Earth’s crust at varioustimes.
This model indicates that about 97 mil-lion years ago there would have been a
structure at the Mukluk prospect that wouldhave accumulated oil, along the lines thatBP had expected, Peters said. However, latertilting of the rock strata somewhere around60 million years ago would have caused theaccumulated oil to migrate through sandsthat would have formed an oil conduit alongthe lower Cretaceous unconformity, withthe unconformity providing an escape routefor the oil, rather than providing a mecha-nism for sealing the oil trap. The model sug-gests that the oil would have flowed south-east into the reservoir sands of the Kuparukfield, with some oil also migrating towardsthe northwest.
The danger of snapshotsAnd the lesson to be learned from this
new insight? Rather than just looking atstatic snapshots of current structures whereoil may be trapped underground, it is impor-tant to consider how these structures haveevolved over time and how this evolutionrelates to events and processes in the region-al petroleum system, Peters said. The 4-Dmodeling of an oil and gas basin can reduceexploration risk, he said.
—ALAN BAILEY
continued from page 1
MUKLUK OIL
continued from page 1
UNTIMELY SPILLS
Contact Gary Park through [email protected]
Contact Alan Bailey at [email protected]
which operates a refinery on the oppositeside of the inlet.
JR Wilcox, president of Cook InletEnergy, told Petroleum News the firstshipped production from Osprey and theRedoubt unit came around June 4. It’s thefirst production from the platform since2009, when a volcanic eruption andfinancial trouble hit west Cook Inlet andOsprey’s former owner.
“It’s a great story,” Wilcox said. “Howoften does a platform come back from thegrave?”
Osprey’s revival headlined a slew ofnews coming from Huntsville, Tenn.-based Miller Energy, which alsoannounced a new line of financing and anew addition to its executive team.
Idle no more“Miller is continuing redevelopment
operations on the Osprey and is currentlyreplacing the ESP on the RU-7 well,which is expected to come online in thenext week,” the June 13 release said.
“Following this replacement, Millerplans to redevelop and drill additionalwells in the Cook Inlet, including the fourwells that are expected to produce anadditional 2,000 Bbls/d gross from theOsprey platform.”
Osprey is the newest and southernmostplatform in Cook Inlet. Forcenergy Inc.completed installation of the platform in2000 over the Redoubt Shoal field.
Production from Osprey has been aserious disappointment over its history,and for a time it appeared the platformwould remain in perpetual “lighthousemode” as an abandoned ward of the state.
With Miller’s backing, Cook InletEnergy in December 2009 picked up theidle platform in a package of oil and gasproperties previously operated byCalifornia-based Pacific EnergyResources Ltd., which had filed for bank-ruptcy.
“With the successful redevelopment ofRU-1, which is exceeding expectations,we continue to demonstrate our opera-tional expertise and our ability to costeffectively operate and redevelop wells inthe Redoubt field and our other Alaskanassets,” said Scott M. Boruff, Miller
Energy chief executive.
New financing, new presidentAlso on June 13, Miller Energy
announced it had closed on a two-year,$100 million credit facility with New York-based Guggenheim Corporate FundingLLC and others.
A credit facility is a loan or collection ofloans that can take different forms, fromletters of credit to revolving credit to termloans, according to financial websites suchas investorwords.com.
Miller Energy said its credit facility“provides for an initial borrowing base of$35 million,” and is secured by “substan-tially all” of the company’s assets.
“Proceeds from the loan will be utilizedto fund development and the constructionof a drilling rig to be used to increase oilproduction both onshore and offshore in
Alaska through the drilling of new wellsand the reworking of previously producingoil wells,” Miller Energy said in its June 13press release.
Aside from the Redoubt unit, Millersubsidiary Cook Inlet Energy operates theWest McArthur River oil field and the WestForeland gas field. Before the Ospreyrestart, the company reported total net pro-duction of just over 1,000 barrels of oilequivalent per day.
The credit facility “ensures that Millerhas the funding to dramatically increaseproduction through low-risk development,”said Boruff, the Miller Energy CEO.“Obtaining a credit facility without an equi-ty component led by Guggenheim was veryimportant for Miller. Beyond the financialsecurity provided by the facility, Miller ispleased to have access to Guggenheim’ssignificant financial capabilities and exten-sive oil and gas expertise.”
On June 14, Miller Energy announced aconsultant and board member, David J.Voyticky, had been appointed companypresident. Voyticky, 42, was instrumental insecuring the credit facility and offers broad
financial experience, having held positionswith Goldman, Sachs & Co., J.P. Morganand others, a Miller Energy press releasesaid.
Living largeAside from Alaska’s Cook Inlet, Miller
Energy’s other focus is the Appalachianbasin in eastern Tennessee, including theChattanooga shale.
The company is listed on the New YorkStock Exchange, and its stock price hassoared since it acquired the Cook Inletproperties.
On June 9, Boruff was featured in a lead,front-page article in the News Sentinelnewspaper in Knoxville, Tenn., as the oil-man who paid $8.5 million for a mansionknown as Villa Collina.
“With eight bedroom suites, 11 fullbathrooms and a site overlooking FortLoudoun Lake, Villa Collina is one ofKnoxville’s most lavish homes,” the articlesaid. �
continued from page 1
OSPREY PRODUCTION
PETROLEUM NEWS • WEEK OF JUNE 19, 2011 19
energy in focusCreative photography for Alaska’s oil and gas industry
Linc said it acquired 100 percent ofRenaissance Alaska LLC, which holds an84.5 percent interest in RenaissanceUmiat LLC, which holds a 100 percentworking interest in the Umiat oil field andan 80 percent net revenue interest in theproject.
Linc said the purchase price is $50million plus adjustments for working cap-ital, deposits and inventory. Linc said the80 percent net revenue interest in theacquired leases is attributed net probableand possible reserves of 201 million bar-rels of oil equivalent with an estimated 1billion barrels of original oil in placewithin the acquired Umiat lease area.
The Umiat field is in the westernfoothills/foldbelt province of the NorthSlope Foothills of Alaska, Linc said, andconsists of 19,358 gross acres over threeleases, two in NPR-A and two on adjacentstate acreage.
State road plan significantLinc said a decision by the State of
Alaska in December 2009 to build an all-season gravel road from the DaltonHighway to Umiat was a significant fac-
tor in the company’s decision to pursuethe Umiat development opportunity.Current estimates are that the road wouldbe some 92 miles long and constructioncould begin within the next 12 to 24months and take some 18 months tocomplete. Linc said the State of Alaskaand the U.S. Army Corps of Engineershave begun work on the federal environ-mental impact statement for the road.
Linc said it anticipates working close-ly with the state to permit and developpipeline infrastructure between Umiatand the trans-Alaska oil pipeline in par-allel with the Umiat road development,with the pipeline to be trenched into theroad.
“The completion of this pipeline willmark the first significant all-season oiltransport infrastructure into the southern
part of the NPRA, opening up the areafor further significant development,”Linc said.
Independent studies by NANAWorleyParsons LLC for Renaissanceconfirmed the viability of a cold pipelineburied in the road, Linc said, with a pre-liminary construction estimate of $207million and a one season constructionperiod.
Immediate plansLinc said that, subject to permitting, it
plans to fly a drill rig into the Umiatairstrip and begin further drilling in thearea this winter season. The companysaid it plans to shoot additional 2-D and3-D seismic on the Umiat leases as soonas practicable and before this winter sea-son.
Linc Energy Chief Executive OfficerPeter Bond said the company’s decisionto invest in Alaska “was greatly assistedby the availability of a number of gener-ous State of Alaska incentives.”
“Linc Energy is extremely well posi-tioned, with access to the necessary cap-ital and resources, to take this projectinto production on an aggressivetimetable,” Bond said. He called Umiatthe “book-end” oil project the companyplans to bring online over the next four
years, and said it should contribute sig-nificantly toward Linc’s goal of reaching100,000 barrels per day of production.
Completion of the Umiat transactionis scheduled for July 6, and the companysaid that to support development ofUmiat “and future expansion plans inAlaska, Linc Energy will be significant-ly expanding its current Alaskan-basedworkforce over the coming months.”
The fieldOil was discovered at Umiat in 1946
by the U.S. Navy, but not developedbecause of its remoteness from infra-structure, historically low oil prices andthe lack of technology to unlock its shal-low oil.
The discovery well, Umiat Test No. 3,was a vertical well with a measureddepth of 572 feet; the reservoir at Umiatis between 200 and 1,400 feet, with aportion of the oil in permafrost.
The Alaska Oil and Gas ConservationCommission lists nine abandoned andthree suspended wells at Umiat, all dat-ing from the 1940s.
—KRISTEN NELSON
continued from page 1
LINC DEAL
Contact Wesley Loy at [email protected]
Contact Kristen Nelson at [email protected]
Completion of the Umiattransaction is scheduled for July 6,
and the company said that tosupport development of Umiat“and future expansion plans in
Alaska, Linc Energy will besignificantly expanding its currentAlaskan-based workforce over the
coming months.”
“It’s a great story. How often doesa platform come back from the
grave?” —JR Wilcox, president, Cook Inlet Energy
gists originally saw the Mesozoic as holdingthe best potential for oil discoveries in theCook Inlet basin. However, when an explo-ration well targeting the Mesozoic under thenorthern Kenai Peninsula discovered theSwanson River field in Tertiary sandstonesin 1957, attention immediately shifted toexploration of the Tertiary, with the subse-quent discovery of a series of good-sized oiland gas fields.
Geologists established that the oil in theTertiary reservoir sandstones had originatedfrom source rocks in the middle JurassicTuxedni group of the Mesozoic sequence,and not from the Tertiary itself. But modelsof oil generation suggested that more oilshould have been formed than had actuallybeen found. That has led to speculation overwhether the unaccounted oil has simplyescaped to the surface, or whether it stillexists in the subsurface, perhaps in as-yetundiscovered oil fields in the Tertiary, orperhaps in Mesozoic reservoir rocks thathave never been tested by an explorationwell.
TimingFrom the outset geologists have puzzled
over the question of the timing of oil migra-tion from the Jurassic source rocks into theTertiary reservoirs. Large north-northeasttrending folds in Tertiary strata, in combina-tion with similar trending geologic faults,trap the oil in the established oil fields. Butgeologists have determined that these struc-tures have formed in relatively recent geo-logic time and are likely still forming. Howcould oil from much older rock formationshave moved into these new geologic struc-tures?
For a number of years the prevailing viewof oil migration into the Cook Inlet oil fieldshas involved a two-stage process in whichthe oil first flowed from the Jurassic sourceinto reservoir rocks in the older part of theTertiary rock sequence. Subsequentupheavals of the rock strata would then havetipped the oil into the younger structureswhere the oil now resides.
Recent work by the U.S. GeologicalSurvey as part of a new Cook Inlet oil andgas assessment that USGS is preparing, hasproposed an alternative and simpler theoryfor oil migration into the known Cook Inletoil fields. Using rock material recoveredfrom several Cook Inlet exploration wells,USGS scientists have estimated the rate atwhich heat has flowed from deep within the
Earth’s crust, upwards through the rocks ofthe Cook Inlet basin. The scientists haveused a burial history model to reconstructthe timing with which Cook Inlet rocks havebeen buried or uplifted during the geologicpast, Paul Lillis, a member of the USGSteam conducting the Cook Inlet assessment,told the annual meeting of the PacificSection, American Association of PetroleumGeologists, on May 11.
Recent oil generationThe USGS analysis has indicated that
heat flow through the basin is relatively lowand that along the southern and eastern mar-gins of the basin the Tuxedni source rock isunlikely to have reached the temperaturesnecessary for peak oil generation. However,in the deep, more central part of the basin theTuxedni would have been heated sufficient-ly for oil generation 15 million years ago,relatively late in the Tertiary period, with the
rocks nearing or reaching peak oil genera-tion at the present time. With oil forming inthe Tuxedni fairly recently, the oil could haveflowed directly into the Tertiary oil traps,rather than having to migrate in two stages,as previously thought, Lillis said.
But what of oil in the Mesozoic, the tar-get of exploration before the discovery of theSwanson River field?
Geologists have for long speculatedabout the possibility of some oil from theTuxedni becoming trapped in Mesozoicreservoir rocks, with Cretaceous-age sand-stones appearing to have the highest reser-voir potential. However, geologist have alsofor long worried about degradation ofMesozoic reservoir rock quality — volca-noes adjacent the basin during the Mesozoiccaused ash and other volcanic material toperiodically spew into the sediments in thebasin. This volcanic material would havesubsequently decomposed, potentially form-
ing pore-clogging minerals. And explorationwells drilled in the lower Cook Inlet haveindeed found these pore-clogging mineralsin Cretaceous sandstones.
However, Robert Blodgett, an expert onCook Inlet and Alaska Peninsula Mesozoicrock stratigraphy, feels optimistic about thereservoir quality of at least some Mesozoicrocks. Widespread clogging of rock pores bysecondary minerals does not happen in allMesozoic rock formations, with the lowerJurassic Herendeen formation, for example,being relatively clean, Blodgett said. Thereare a lot of good rocks down there, he said.
Jurassic oil sandsBlodgett pointed out that well Soldotna
Creek Unit 22-32 in the Swanson River fieldhad actually penetrated oil sands of Jurassicage and that a well in the Trading Bay unit,on the west side of the Cook Inlet, has pro-duced oil from the Jurassic.
Blodgett is also something of a championfor the Kamishak formation, a potentiallyprolific oil source rock, Triassic in age,equivalent to the Shublik formation, the pre-mier oil source for the North Slope oil fields.The Kamishak exists in considerable thick-ness along the northeastern portion of theAlaska Peninsula but, unfortunately, noCook Inlet wells have ever drilled deepenough in the Cook Inlet basin to determinewhether the Kamishak lies below theJurassic rocks of the basin — geologistshave speculated whether any oil from theKamishak has contributed to the Cook Inletoil fields.
The USGS scientists, in their work ontheir Cook Inlet oil and gas assessment, havecome to the conclusion that Kamishak oil isvery unlikely to exist in the Cook Inlet basin.The burial model that the scientists havedeveloped indicates that burial of theKamishak in the basin would have pushedthe formation through the temperature win-dow for oil generation before the lateCretaceous, thus causing oil to form beforethe existence of the reservoir rocks in whichthe oil might have become trapped, Lillistold the AAPG conference. In addition,USGS says that analyses of the compositionof oils from Cook Inlet oil fields demon-strate origination in the Tuxedni, with no evi-dence for the existence of oil originatingfrom the Kamishak.
Model questionedHowever, Blodgett questions whether the
distinctions between Tuxedni and Kamishakoils are as clear cut as USGS thinks.
And he also questions the USGS burialmodel, saying that on the west side of theCook Inlet basin several wells have penetrat-ed lower Jurassic strata at depths shallowenough to likely place the Kamishak in theoil generation window, if the Kamishak liesbelow the Jurassic in that region. On theother hand, with the Mesozoic being buriedmuch deeper on the Kenai side of the basin,the USGS pessimism over the Kamishak isjustified there, he said.
The bottom line on all of this seems to bethat, with relatively few wells drilled outsideor below known oil fields and with a gener-al lack of high-resolution seismic data, hugeunknowns and uncertainties remain regard-ing Cook Inlet petroleum geology. Perhapsthe time has come for someone to take achance and drill into some of the untested oilplays. The state has offered a $25 million taxcredit to the first company to drill into theCook Inlet Mesozoic from an offshore jack-up rig. And perhaps an undiscovered oilfield lurks in an unexplored Tertiaryprospect.
With top-notch oil source rocks in theregion and an abundance of rocks that canhold and trap hydrocarbons, the stakes arehigh. �
20 PETROLEUM NEWS • WEEK OF JUNE 19, 2011
continued from page 1
OIL ORIGINS
Contact Alan Bailey at [email protected]
Oil originating from the Jurassic Tuxedni group has been produced for many yearsfrom Tertiary rocks of the Cook Inlet basin. But what are the chances of finding newoil fields, either in the Tertiary or in the older Mesozoic rocks of the basin?
