Point Thomson advances · 5 QE Forever bolsters gold price ... 14 Fire Island turbines go online ... including FM-200 and water mist suppression systems

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North Slope Borough not happywith Interior’s NPR-A preferred plan

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Vol. 17, No. 40 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of September 30, 2012 • $2

The September issue of North of 60 Mining News is enclosed.

September Mining News inside

ROSE RAGSDALE PHOTO

Jack Korppi, underground mine manager at theWolverine Mine in southeastern Yukon Territory, sayssolving the operation’s mining and production problemsis “an exciting challenge.” Yukon Zinc Corp. will sooncomplete its second year of commercial production atthe 5.2 million-metric-ton deposit of silver-rich vol-canogenic massive sulfide ore.

A special supplement to Petroleum NewsWEEK OF

September 30, 2012

5 QE Forever bolsters gold price Banks, billionaires see Fed policy pushing safe-haven metal over US$2,000

9 Location key to Yukon mining Access to infrastructure improves odds of developing world-class deposits

13 Tower Hill picks new top exec Ewigleben leads effort to mine 20-million-ounce Livengood gold project

Point Thomson advancesAlaska proposes granting pipeline right of way; wait for federal permit continues

By WESLEY LOYFor Petroleum News

ExxonMobil is close to securing a state right ofway for a pipeline to support its planned Point

Thomson development on Alaska’s North Slope.But prospects for another key authorization

remained unclear as the U.S. Army Corps ofEngineers missed its target date for deciding on awetlands permit for the project.

ExxonMobil is planning to produce petroleumliquids from the remote Point Thomson field,located on state land about 60 miles east ofPrudhoe Bay. State officials have long pushed forproduction at Point Thomson, and in March signeda legal settlement with ExxonMobil and its part-ners laying out a development schedule.

Ultimately, the leaseholders could spend bil-

lions of dollars to fully develop the field, whichholds an estimated 8 trillion cubic feet of naturalgas and hundreds of millions of barrels of crude oiland other petroleum liquids.

On Sept. 19, state Natural ResourcesCommissioner Dan Sullivan signed a proposedlease decision for the Point Thomson ExportPipeline.

The pipeline will carry Point Thomson liquids22 miles west across state land, feeding it into theexisting North Slope pipeline network at the

PTE will lay the pipeline from ice roadsover two upcoming winter construction

seasons.

see POINT THOMSON page 20

A careful approachStatoil watches Shell drilling project; prepares Chukchi exploration plan

By ALAN BAILEYPetroleum News

Norwegian oil major Statoil contin-ues to see the Chukchi Sea as an

exciting place in which to explore for oilbut is carefully considering its nextmoves in the region, waiting to see whattranspires in Shell’s Chukchi Sea drillingcampaign, Lars Andreas Sunde, Statoil’shead of Alaska operations, has remarkedin recent speeches to both the Alaska SupportIndustry Alliance and the Alaska Oil and GasCongress.

The Chukchi Sea dovetails into Statoil’s overallinterest and experience in oil and gas development

in the Arctic — the company already hasan operating Arctic gas field at Snohvitin the Barents Sea, as well as pursuingexploration and development plays in theBarents Sea, in the Russian Arctic off-shore, offshore Newfoundland and off-shore west Greenland.

Statoil had been hoping to drill itsfirst Chukchi Sea exploration well in2014 but, as Shell’s program slowlymoves forward, Statoil has deferred its

drilling expectations to 2015 at the earliest. Anddecisions on additional drilling will depend on theresults from that first well, Sunde told Petroleum

LARS SUNDE

see STATOIL page 19

Canada pitches Japan, Koreaon ‘safe, reliable’ LNG supplies

Canada’s Natural Resources Minister Joe Oliver told aninternational LNG conference in Tokyo earlier in Septemberthat five export projects could be shipping 9 billion cubic feetper day of Canadian gas to Asia by 2020 — two-thirds ofCanada’s current gas output and by far the most optimistictarget any government official has set to date for an LNGindustry that has yet to make a final investment decision foreven one project.

“The opportunity is huge, our competitive advantage isclear and we are poised to become a major new safe, reliableand cost-effective LNG supplier to Japan, Korea and other

Apache puts Cook Inlet seismicon hold pending issue of permits

Apache Corp. is pausing its 3-D seismic program inAlaska’s Cook Inlet basin while it waits for some federal per-mits that it needs, John Hendrix, the company’s general man-ager in Alaska, told Petroleum News Sept. 26.

“We won’t be shooting seismic after next week until wehave permits,” Hendrix said.

Exploring for oilApache wants to drill for oil and is conducting a high-res-

olution 3-D seismic program across wide areas of the basin toidentify drilling targets. The company has now completedsurveys on the west side of the inlet, and across a 15-milewide fairway in the northern waters of the inlet, to connect thesurvey on the west side over to the northern Kenai Peninsula.

see LNG SUPPLIES page 17

see APACHE page 17

Sullivan plays hardballAlaska LNG most competitive he tells Asians; also pushing upstream investment

By KAY CASHMANPetroleum News

Using a combination of “diplomacy” and“hardball advocacy” on his recent trip to

Japan and South Korea, Dan Sullivan was notafraid to criticize Alaska’s competition in the LNGmarket, while touting the state’s geographic prox-imity, political and legal stability, and cost com-petitiveness.

“My goal was to get out in front of potentialbuyers and essentially say, ‘look we know you aregoing to need gas as you look to fill supplies overthe next decade. When the producers — BP,ExxonMobil and ConocoPhillips — come to youwith their portfolios … of projects across the globe

… we want you to ask for Alaska gas, not just anygas,” the commissioner of the Alaska Departmentof Natural Resources told both Japanese and South

Dan Sullivan at LNG conference in Japan.

see SULLIVAN TALKS LNG page 18

http://www.PetroleumNews.com/

http://www.MiningNewsNorth.com/

2 PETROLEUM NEWS • WEEK OF SEPTEMBER 30, 2012

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

FINANCE & ECONOMY

LAND & LEASING

ENVIRONMENT & SAFETY

ALTERNATIVE ENERGY

GOVERNMENT

INTERNATIONAL

PIPELINES & DOWNSTREAM9 Kenai line planned to connect Red Pad gas

Alaska Pipeline, Hilcorp working jointly on 10-mile lineto bring stranded natural gas from 2004 discovery into Enstar system

8 Judge dismisses Miller Energy lawsuit

Other cases remain alive against the Tennessee-basedparent of Cook Inlet Energy; shareholders allege fraud in stock price drop

4 Spy agency enters CNOOC-Nexen debate

Canadian government warned that state-linkedorganizations could engage in ‘espionage and other foreign interference activities’

5 NSB not happy with Interior on NPR-A

North Slope Borough Mayor concerned Interior’spreferred plan for NPR-A will result in tanker shipments rather than line to TAPS

7 Some lessons learned in the Arctic OCS

Lawyer comments on the permitting situation as Shell’sdrilling program in the Beaufort and Chukchi seas slowly moves forward

3 State, AGPA, OFC update Alaska LNG

Navigant consultant says liquefied natural gas goodoption for US, state’s natural gas, but other projects could block out Alaska

6 Gas producers turn on TransCanada

Industry joins forces in opposing TransCanada’sapplication to shift costs from underutilized Mainline to Alberta’s Nova system

10 Oil tax discussion up again in 2013

Administration preparing for January; Armfield calls for ‘Nordstrom model’ — attractions for new customers, benefits for existing

NATURAL GAS

contents

14 Fire Island turbines go online

11 Applying state statutes to shale oil

12 Quebec points to shale gas ban

13 Arctic policy commissioners appointed

14 Shell sues Greenpeace over demonstrations

13 UK lawmakers seek moratorium on drilling

9 Senate bill boosts legacy well funding

9 Stedman named chair of The Energy Council

14 Deals struck on Sword, Sabre prospects

12 TransCanada: Line interest encouraging

6 Interior sets NPR-A lease sale date

Canada pitches Japan, Koreaon ‘safe, reliable’ LNG supplies

Apache puts Cook Inlet seismicon hold pending issue of permits

Point Thomson advances

Alaska proposes granting pipeline right of way; wait for federal permit continues

A careful approach

Statoil watches Shell drilling project; prepares Chukchi exploration plan

Sullivan plays hardball

Alaska LNG most competitive he tells Asians; also pushing upstream investment

ON THE COVER

SIDEBAR, Page 18: Parnell seeks support for Alaska gas in Asia

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By KRISTEN NELSONPetroleum News

While the Alaska Oil and GasCongress got updates on North

Slope natural gas projects Sept. 18-19, theconference was a bit early for what will bebreaking news at the end of September.

The end of the third quarter occurs afterthis issue of Petroleum News goes to print,and that’s the target set by Gov. SeanParnell for Alaska’s North Slope natural gasowners to harden numbers for an Alaskaliquefied natural gas project and to identifya pipeline project with an associated workschedule. It’s also the deadline Parnell setfor the mainline project, under the AlaskaGasline Inducement Act, and the in-stateline under the Alaska Gasline DevelopmentCorp. to complete discussions determiningthe potential to consolidate the projects.

Those are two of five benchmarks thegovernor set in his January 2012 State ofthe State address.

The benchmarks are summarized in anAug. 13 transition report to legislators fromKurt Gibson, director of the state’s GasPipeline Project Office.

The state and major leaseholdersresolved Point Thomson litigation, the firstitem on the governor’s list, on March 29.

The second item, the governor’s call forthe North Slope producers to align underthe AGIA framework and include work onan LNG project to tidewater by the end ofthe first quarter, was ticked off March 30when CEOs for the producers signed a let-ter to the governor announcing an agree-ment to work together in an effort to “com-mercialize North Slope natural gasresources within the AGIA framework.”

The fifth item on the governor’s list iscontingent on other milestones being metand specifies that if those milestones havebeen met, the 2013 Legislature can take upgas tax legislation.

Alaska Gasline Port AuthorityBill Walker, general counsel and project

manager for the Alaska Gasline PortAuthority, formed in 1999 by voters inValdez, Fairbanks and the North SlopeBorough, told the congress Sept. 18 that theauthority was looking at three options for aliquefied natural gas plant in Valdez. Theborough has since dropped out.

The first option came out of a 1998-99LNG study by the Alaska North Slope

LNG Project, organized by ARCO Alaska(later Phillips Petroleum) and includingFoothills Pipe Lines Ltd., Marubeni Corp.and CSX Corp. through subsidiary YukonPacific Corp. (Yukon Pacific dropped outin 1999 and was replaced by BP).

Walker said one of the options thatgroup studied was co-locating the LNGfacility at the Alyeska Valdez MarineTerminal, using acreage available at the ter-minal and making use of excess berths.

Another option is at Anderson Bay,some five miles toward the Valdez Narrowson the same side as the Alyeska terminal.Walker said that is the location YukonPacific Corp. selected; that site was permit-ted by the Federal Energy RegulatoryCommission for a three-train project.

The port authority has been workingwith Excelerate Energy on a third option, afloating LNG facility, an option possiblebecause of technology advances, he said.Walker said the port authority becameinterested in that option when it heard theprice: compared to $1,200 per ton for liq-uefaction onshore, the estimate for floatingliquefaction was $450-$600 per ton.

The port authority did a nonbindingsolicitation of interest, with a goal of 2.7billion cubic feet per day, plus an estimated0.5 bcf per day of existing and projected in-state use.

Walker said there was interest totaling2.8 bcf per day from the Asian market.

As for what’s next, he said AGIA is notworking and the state should exit or rene-gotiate.

The competitive pictureBob Gibb, associate director of the

Fuels Group with Navigant consultants,addressed the competitive issue, providingbackground on Lower 48 natural gas andLNG export projects in the works inCanada and the Lower 48.

The development of shale gas in NorthAmerica has changed the natural gas avail-ability picture on the continent, Gibb said.And it isn’t just the U.S. and Canada.Mexico also has a tremendous amount ofrecoverable shale gas, but it’s cheaper forMexico to import U.S. natural gas thandevelop their own resources, so they’re put-ting their development on hold, he said.

In the U.S. the situation has changedfrom needing gas and looking at importfacilities for LNG, to the conversion ofimport facilities for export.

But there are issues for shale gas devel-opment, he said, using resistance to theKeystone Pipeline as an example. Gibbsaid that people forget that when the origi-nal Keystone line was built five years ago,there was no resistance; that’s how quicklythings change, he said.

Another issue is drilling. While rigsdrilling for oil now exceed those drilling forgas, that’s a function of lower-priced gasand efficiencies, he said. The current countis just over 600 rigs drilling for dry gas inthe U.S. compared to 1,275 in 2008, butGibb said what doesn’t show up in the sta-tistics is that the time to drill a well hasbeen cut by more than half and the effi-ciency of hydraulic fracking as increased.He said fracking is still a relatively new sci-ence and it’s being improved. There’s alsoassociated gas — when you drill for oil youusually get some gas. Associated gas in theBakken is still growing, even with the dropin rigs, he said.

With the increasing supply of naturalgas, a number of people are looking toexport LNG to get that gas out of the U.S.and by 2020 the U.S. is expected to be a netexporter of LNG.

He said Navigant expects that some sixto eight export facilities will be developed,and that does create a certain urgency forAlaska because the further along otherfacilities get, “the tougher it’s going to be ...to find the markets that are going to takethe Alaskan gas.”

Regulatory issuesLarry Persily, federal coordinator for

Alaska Natural Gas TransportationProjects, addressed the issue of whetherpolitics or laws would get in the way of sell-ing North Slope natural gas.

Department of Energy approval isrequired to ship natural gas out of the U.S.,he said, and while it’s easy to get thatapproval to ship to a free-trade partner,those partners are countries like Australia,Bahrain and Chile, which is not where youwant to ship LNG. South Korea was addedlast year, Persily said, but that’s a small mar-ket, only some 4.5 bcf a day, compared tothe 80-plus bcf a day of natural gas utilizedin North America and a global LNG marketwhich was about 32 bcf a day last year,about a third of that Japan, a third the rest ofAsia and a little less than a third Europe.But approval to ship to other nations is notso easy to get.

Last year the Energy Departmentapproved an export license for CheniereEnergy, the only approval it’s ever givenother than to Alaska, Persily said.

But after approving Cheniere, thedepartment put a hold on all other applica-tions, pending two studies, one of which hasbeen completed but the other, on the overalleconomic effect of exports on the U.S.economy, has been repeatedly delayed andnow won’t be out until after the election.

Another requirement is a FERC certifi-cate for the liquefaction facility, he said, andFERC has the option to exercise authorityover an export pipeline.

Then there is a presidential determina-tion that exports of North Slope natural gas,except to Canada or Mexico, won’t hurtU.S. utilities. And while such a determina-tion was made in 1988, allowing exports,“is that 24-year-old presidential determina-tion still valid?”

No one has asked, he said. �

PETROLEUM NEWS • WEEK OF SEPTEMBER 30, 2012 3

Contact Kristen Nelson at [email protected]


State, AGPA, OFC update Alaska LNGNavigant consultant says liquefied natural gas good option for US, state’s natural gas, but other projects could block out Alaska

http://www.askcasey.com/

http://www.aecom.com/

By GARY PARKFor Petroleum News

T he same day shareholders of Nexenneeded only a few minutes to rub-

ber-stamp the US$15.1 billion sale oftheir Calgary-based company to ChinaNational Offshore Oil Corp., CNOOC,the Canadian government’s spy agencydropped a bombshell.

In its annual report for 2011, theCanadian Security Intelligence Service,CSIS, warned that foreign investment bystate-linked organizations could threatenCanada’s national security.

CSIS said in a report tabled inParliament that state-controlled compa-nies with ties to foreign intelligence agen-cies or hostile governments could useCanadian takeovers to engage in “espi-onage and other foreign interferenceactivities.”

While CSIS did not name specificcountries or companies, and its report wasprepared long before CNOOC launched

its bid for Nexen in June, its report furtherinflamed opposition to the deal.

The Canadian government’s foreigninvestment review agency has an initialdeadline of Oct. 12 to deliver its recom-mendations on the CNOOC-Nexen trans-action, although it can add another 30days to the process.

The CSIS report was precisely theammunition Canada’s opposition NewDemocratic Party has been looking for tobolster its argument for a full public hear-ing on the deal at a time when a new pub-lic poll showed 69 percent of 1,208respondents want the government to rejectthe CNOOC-Nexen arrangement, whileonly 8 percent back the takeover.

Other governments involvedAside from Canada, the United States,

the United Kingdom and the EuropeanUnion all have the option of reviewing thedeal because of Nexen’s widely-scatteredoperations.

Washington’s Committee on Foreign

Investment in the United States is alreadyconducting a probe based on Nexen’s 20percent stake in the Gulf of Mexico,including the Shell-operated Appomattoxdiscovery.

Robert Hormats, the U.S. undersecre-tary for economic growth, energy and theenvironment, while declining to commentspecifically on CNOOC-Nexen, said theObama administration welcomes invest-ment in North America provided there areno national security concerns.

“Chinese investments (in the U.S.)would be even more welcome if we wereconvinced that the Chinese companiesthat are investing did not achieve compet-itive benefits by large amounts of govern-ment support, which give them an artifi-cial competitive advantage here,” he said.

He said the U.S. government needs tobe convinced that Chinese companies areoperating in the U.S. for commercial rea-sons and not as part of a government pol-icy objective.

Shareholders endorse proposalA United Kingdom government

spokesman said CNOOC would have topass an assessment to operate in the U.K.North Sea, adding an entrant into the area“would have to abide by the U.K.’s strin-gent oil and gas regime” by establishingthat it was competent to run oil and gasoperations.

Following the Nexen vote, with 97 per-cent of common shareholders and 87 per-cent of preferred shareholders endorsingthe proposal, the company interim ChiefExecutive Officer Kevin Reinhart saidCNOOC has strengthened its claim bypromising to continue fully developingNexen assets, to retain all Nexen employ-ees, to establish a headquarters in Calgaryto run all of CNOOC’s assets in North and

Central America, and to keep a listing onthe Toronto Stock Exchange.

“This transaction will in no way closethe book on Nexen or on our way of doingbusiness,” Reinhart said, but sidesteppedquestions on the public debate or theinvestment review.

Wavering in government circlesHowever, the uneasy mood shows

signs of spreading through governmentranks, regardless of the repeated com-ments by Prime Minister Stephen Harperand senior cabinet ministers that foreigninvestment is vital if Canada is to attractthe C$650 billion needed to grow its oilsands and shale deposits over the nextdecade.

But Harper has also hedged by insist-ing that China must demonstrate that itcan be trusted to operate by the same rulesas Canadian companies.

Minister of State for Finance TedMenzies reflected the wavering withingovernment circles by saying he had“heard many concerns, varying concerns,concerns about the resource industry, con-cerns about a foreign company investingin Canada.”

Liberal Party deputy leader RalphGoodale said that if Nexen was purchased“what’s next? Is it Talisman, is it Cenovus,is it Encana? Where do these dominoesbegin to fall and where do they stop?”

The uncertainty may have reachedBeijing, which is dispatching itsCommerce Minister Chen Deming toCanada to meet with government offi-cials, although CNOOC said it did notexpect Chen to raise the sensitive takeoverbid. �


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NSB not happy with Interior on NPR-ANorth Slope Borough Mayor concerned Interior’s preferred plan for NPR-A will result in tanker shipments rather than line to TAPS


A laska Gov. Sean Parnell has already expressed thestate’s displeasure with the U.S. Department of the

Interior’s preferred alternative for the National PetroleumReserve-Alaska plan, informing Secretary Ken Salazar ina Sept. 12 letter that the state is withdrawing as a cooper-ating agency from the planning agreement for NPR-A (seestory in Sept. 16 issue of Petroleum News).

The North Slope Borough alsohas concerns about Interior’s pre-ferred alternative for NPR-A devel-opment.

In remarks prepared for deliveryto the Alaska Oil and Gas Congressin Anchorage Sept. 19, boroughMayor Charlotte Brower said theborough is not anti-oil and gas devel-opment, but has always expressed apreference for onshore developmentover offshore development.

Concerns the borough has, Brower said, are centeredaround protection of subsistence resources — food securi-ty.

She cited recent remarks by Salazar that countries inthe Arctic must listen to each other and to local communi-ties.

But, she said, the recent announcement of Interior’s pre-ferred alternative for NPR-A doesn’t incorporate concernsraised by North Slope residents, communities and region-al corporations.

She said the borough was disappointed by the lack ofcollaboration in the development of Interior’s preferred B-2 alternative, especially in light of the memorandum ofunderstanding the borough has with Interior’s Bureau ofLand Management, which Brower said specifies consulta-tion in developing alternatives.

Marine environmentOne of the borough’s major concerns is protection of

the Arctic marine environment, Brower said, and the bor-ough is concerned that if the federal government’s man-agement plan for NPR-A severely limits the area in whicha pipeline from the outer continental shelf could be built,

the economic consequence would be to drive producers tofavor oil tankers over a pipeline taking OCS oil acrossNPR-A to the trans-Alaska oil pipeline.

She said the borough believes pipelines to shore needto be encouraged and the use of tankers discouraged.

She also cited economic consequences for the state andthe borough. If OCS oil does not come onshore, the bor-ough and the state will see virtually no benefit from OCSdevelopment, while bearing the majority of the risks,Brower said.

Teshekpuk LakeAnother concern the borough has is that the size of the

Teshekpuk Lake special area in the B-2 alternative pro-hibits oil and gas development in areas of NPR-A with thehighest resource potential.

Brower said the borough has seen that with robust per-mit stipulations and best management practices oil and gasdevelopment can occur withoutsevere negative consequences on theenvironment and subsistenceresources.

She said the borough hopes thatthe NPR-A alternative selected willfocus on responsible resource devel-opment and economic opportunity.

Other issues of concern to the bor-ough include lack of a permanentU.S. Coast Guard presence on theNorth Slope, the lack of progress in remediating legacywells drilled by the federal government in NPR-A and thelack of a broadband communications link between NorthSlope communities and the rest of the state.

Local inputBrower said one of the greatest strengths in onshore

development is extensive reliance on local input. A similar level of local participation is needed if off-

shore Arctic exploration moves forward, she said, citinglocal expertise on the Arctic environment based on longexperience.

Brower cited Great Bear Petroleum as an example ofwin-win cooperation for development. She said boroughstaff recently visited the site of Great Bear’s Alcor No. 1

well and said it had a small footprint and was clean andwell organized. She said the drill site was physically closeto the Sag River and to mitigate possible adverse events,Great Bear had lined and bermed the entire drill site, notjust limited areas. She said the berm around the entire sitewas not required, but called it the responsible thing to do,and said had there been an unplanned event the Sag Riverwould have been protected.

She also cited use by Great Bear of heavy duty rig matsover the drill site and access road. She said borough staffwitnessed the move of the rig from one drill site to the nextand said while adjacent areas had heavy mud due to recentrain, the Great Bear sites has been protected by the rigmats.

Brower also cited outreach and support by Statoil, Shelland ConocoPhillips.

More onshore focusBrower said while she shared the concern of the previ-

ous mayor, Edward Itta, with offshore development, shefelt he neglected to address onshore development.

She said the borough supports the governor in his effortto increase onshore North Slope development, andbelieves it is now time to commit to a unified Alaska posi-tion on a fair share of oil taxes.

The mayor also noted concerns expressed by RichardGlenn, the vice president of landsand natural resources for ArcticSlope Regional Corp., with aboutInterior’s preferred NPR-A alterna-tive. She quoted Glenn as sayingthat wildlife does not recognizeboxes on a map and that Interior’spreferred alternative is based on themistaken assumption that develop-ment can proceed in one part of

NPR-A only by locking up another part. She also quoted Glenn as saying that Salazar’s claim

that his alternative is supported by Native interests is notcollaborated by regional organizations or Native landown-ers in NPR-A.

Close to 59 percent of Alaska’s 365 million acres arefederally managed, Brower said, and most of that land isundeveloped with little or no infrastructure.

She pledged to North Slope residents that her adminis-tration would work with the governor, state legislators,Coast Guard, industry, congressional delegation and Arcticneighbors to find a balance between economic benefits ofdevelopment and preserving cultural and social wellbe-ing of Arctic peoples. �

On the webSee previous Petroleum News coverage:

“Parnell calls for re-start on NPR-A,” inSept. 16, 2012, issue atwww.petroleumnews.com/pnads/555587494.shtml

CHARLOTTE BROWER

If OCS oil does not come onshore, the boroughand the state will see virtually no benefit fromOCS development, but will bear the majority

of the risks, Brower said.

Another concern the borough has is that thesize of the Teshekpuk Lake special area in the

B-2 alternative prohibits oil and gasdevelopment in areas of NPR-A with the

highest resource potential.


http://www.toteminc.com/


For more than 40 years, natural gas pro-ducers in Western Canada had only

one option if they wanted to sell their out-put in the big markets of Eastern Canada orthe United States.

They had to do business withTransCanada, which meant they mostlykept any unhappiness with the company tothemselves in return for gaining access tothe 6 billion cubic feet per day Mainlinesystem.

Then the Alliance pipeline took shapein the late 1990s, causing a rancorous com-petitive clash in the process.

For the first time, some producers weresufficiently emboldened to unburdenthemselves of long-suppressed feelingsabout TransCanada.

But seldom, in the 54 years since theMainline started deliveries, have gas pro-ducers been as forthright as during thefinal phase of a marathon National EnergyBoard hearing that could determine thefuture of the system.

Years of frustrationIt was like years of bottled-up frustra-

tion with TransCanada poured out.No one could recall a previous case

when the top guns in the producing sectortalked openly about the problems they arehaving with the collapse in commodityprices and the loss of market share andtook the chance to retaliate against

TransCanada’s application to raise tolls onits wholly owned Alberta-based Novapipeline system to offset a slump in vol-umes on its Mainline.

Three industry giants — Dave Collyer,president of the Canadian Association ofPetroleum Producers; Murray Edwards,chairman of Canadian Natural Resources;and Randy Eresman, chief executive offi-cer of Encana — essentially warned theNEB that unless the tolling dispute couldbe resolved, the Mainline could end up a“stranded asset,” which CAPP described asbeing an asset that could not be revivedthrough tolls over the economic life of theline.

Collyer said that if TransCanada wasunable to recover its lost volumes — cur-rently it is carrying about 4.4 billion cubicfeet per day, about 1.6 billion cubic feet perday short of capacity — “we’ll be back infront of you (the NEB) debating a strandedinvestment.”

That possibility clearly troubled NEBChairman Gaetan Caron, who said theprospect is one the federal regulator hasnever before had to face.

However, Collyer softened his argumentsomewhat by saying he was not calling fora writedown of TransCanada assets, or anyother specific measures, for as long asCAPP believed TransCanada could winback long-haul volumes.

8,800 milesThe 8,800 mile Mainline runs from the

Alberta-Saskatchewan border to Eastern

Canada, with connections into the UnitedStates, making it the world’s longest gastransmission system.

In its statement to the NEB, CAPP said“the current method of regulation, with itsvirtual guarantee of cash flow certainty,lacks accountability for day-to-day deci-sions. TransCanada seeks to preserve thatcash flow certainty by inappropriatelyseeking to broaden its base of ‘shippers’who are responsible for Mainline costs toinclude (Nova system) shippers.”

“TransCanada needs to be in a positionwhere it is more at risk on a day-to-daybasis for the decisions it makes.”

CAPP said it expects the WesternCanada gas business to remain in a state offlux for an extended period until customersadjust to sweeping changes, gas displacescoal at power-generation plants andexports of LNG make their debut.

Mainline costs to NovaEdwards said in the CAPP statement

that TransCanada’s idea of allocatingMainline costs to Nova “turns business onits head.”

“When we contract with (Nova) weunderstand we are at risk for (Nova) costsand for what we contract for. As part ofsuch contract we do not assume responsi-bility for Mainline costs,” he said.

Edwards said the notion of shifting bur-dens from one system to another is “offen-sive” because it would force producers toassume costs and risks they never accept-ed.

Eresman said an increase in tolls onNova to backstop the Mainline would beunprecedented and introduce regulatoryuncertainty, depress natural gas activityand drive away investment.

Real Cusson, senior vice president ofmarketing at Canadian Natural Resources,said it is “absolutely essential thatTransCanada understands that (theMainline) is their asset and their invest-ment to manage for success. It is not for theNational Energy Board to provide daddy’smoney to bail out the kids every weekend.”

He said that if TransCanada employeeswere required to be more responsive tomarket forces they would overcome thecompany’s problems, but he scornedTransCanada’s current modeling that pre-dicts a lift in Alberta gas prices as a case of“plugging in any number you want … toget the answer you want.”

The current round of hearings is expect-ed to end about mid-October, with an NEBverdict scheduled for 2013.

TransCanada is currently exploring theconversion of part of the Mainline to carryrising crude production from the Albertaoil sands and the Bakken formation inNorth Dakota and Saskatchewan to deliver300,000-800,000 barrels per day torefineries in Eastern Canada.

But discussions with potential crudeshippers are taking place outside the NEBhearings and TransCanada has yet to saywhen it might make an announcement. �


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Gas producers turn on TransCanadaIndustry joins forces in opposing TransCanada’s application to shift costs from underutilized Mainline to Alberta’s Nova system

LAND & LEASINGInterior sets NPR-A lease sale date

Secretary of the Interior Ken Salazar said Sept. 25 that the Bureau of LandManagement will hold this year’s annual National Petroleum Reserve-Alaskalease sale Nov. 7.

The State of Alaska will hold its 2012 North Slope, Beaufort Sea and NorthSlope Foothills oil and gas lease sales on that same date.

The NPR-A lease sale will include 400 tracts, covering some 4.5 million acres. This compares to the 2011 NPR-A sale which made 283 tracts and 3 million

acres available. BLM’s draft determination of National Environmental Policy Act adequacy is

available at www.blm.gov/ak “The energy resources of the National Petroleum Reserve in Alaska are essen-

tial to meeting our nation’s energy demands and will enhance domestic energyproduction and decrease dependency on foreign oil sources,” Salazar said in

see SALE DATE page 7


http://www.pndengineers.com/


On Sept. 18, a week or so after the drill-ship Noble Discoverer finally started

drilling through the Chukchi seafloortowards Shell’s Burger prospect, attorneyEric Fjelstad, a managing partner in PerkinsCoie LLP, talked to the Alaska Oil and GasCongress about the lessons that can belearned from Shell’s experience in ArcticAlaska and the current status of Arctic outercontinental shelf oil exploration permitting.

It has taken Shell several years, in theface of appeals against its permits, to reachthe point of starting to drill. And this year,following multiple delays in the start of itsdrilling, the late completion of work on itscontainment barge and problems with seaice at its Burger site, Shell has had to scaleback its expectations in the current openwater season from an original plan to com-plete several wells in the Chukchi andBeaufort seas to the drilling of just some so-called top-hole well sections.

Given the contingency of people whohave a philosophical opposition to Arcticoffshore oil development, with no possibili-ty of changing their views, it will continueto be difficult to move forward with oilindustry projects on the Arctic outer conti-nental shelf, Fjelstad commented.

“With that said, I absolutely believe it’sdoable,” he added.

Exploration plansThe fact that in 2010 and 2012 the U.S.

Court of Appeals for the 9th Circuit rejectedappeals against approval of Shell’s outercontinental shelf exploration plans is ofmajor significance in paving the way foroffshore drilling, Fjelstad said.

“That is huge. That is the most signifi-cant permit. That is the one that builds themomentum,” he said.

But appeals over the approval of Shell’s

oil spill response plans for its drilling haveyet to be resolved.

However, there is now some regulatorycertainty over conducting outer continentalshelf seismic surveys, with Shell,ConocoPhillips, Statoil and BP all havingconducted offshore surveys in recent years.The permitting issues associated with off-shore surveys are now quite well under-stood: If a company embarks on the permit-ting in the fall of one year it can have a highexpectation of obtaining the necessary per-mits in time to conduct a survey during thesummer open water season of the followingyear, Fjelstad said. But there is still someuncertainty over permitting seismic workwhen done alongside a drilling operation, hesaid.

Lease sale appealAn appeal challenging the legality of the

2008 Chukchi Sea lease sale in which Shell,ConocoPhillips and Statoil purchased theleases that they are now exploring has yet tobe resolved. The appeal, contesting thelegality of the environmental impact state-ment, or EIS, for the sale, first went to thefederal District Court in Alaska. That courtremanded the EIS to the Department of theInterior for rework over issues relating tomissing environmental information. Interiorundertook a very rigorous EIS revision,which the District Court eventually upheld,Fjelstad said. However, the appeal has nowmoved to the Court of Appeals for the 9thCircuit, with a ruling from that court antici-pated in perhaps early 2013, he said.

Air permitsThe obtaining of air permits under the

Clean Air Act for its drilling fleet proved tobe a major challenge for Shell. Under whatFjelstad characterized as “the old regime,”the Environmental Protection Agency ini-tially viewed the point of air quality compli-ance for an offshore drilling operation as the

edge of the drillship, although the agencysubsequently extended the point of compli-ance out to the edge of a 500-meter zonearound the vessel.

But, with the drilling operation takingplace many miles offshore, no one wouldexperience any air degradation from thedrillship’s diesel engines unless they tookthe implausible step of driving a boat out tothe drill site, Fjelstad said.

Congress subsequently changed the law,transferring the responsibility for outer con-tinental shelf air permitting to theDepartment of the Interior, the agencywhich was already responsible for air per-mits for outer continental shelf oil and gasoperations in the Gulf of Mexico. That willresult in a change of the Arctic offshore per-mitting standard to that of the Gulf ofMexico, where the point of air quality com-pliance is the shoreline, Fjelstad said.

“This is all positive,” he said.

Endangered Species ActFjelstad thinks that concerns in Alaska

about the impact of wildlife listings underthe Endangered Species Act on Arcticresource development have been overblown,especially since the circumstances underwhich Arctic species are listed tend to bevery different from those of listings thathave taken place in the Lower 48. Andindustry has co-existed for a long time withthe listed species in the Arctic. The bowheadwhale, for example, has been listed for sometime and its numbers have been increasing.

As part of the permitting process a fed-eral agency will ask the National Marine

Fisheries Service, for example, if a plannedactivity is expected to have an adverseimpact on a listed species or its habitat. Thisis a permitting step, but it is not that scary,Fjelstad said.

Pre-emptive lawsuitsOf particular interest to lawyers this year

has been a series of pre-emptive lawsuitsthat Shell has filed against environmentalorganizations. One of these lawsuits, arequest for an injunction againstGreenpeace, prohibiting that organizationfrom interfering with Shell’s operations, wasnot especially unusual. But the other Shelllawsuits, petitioning the federal DistrictCourt in Alaska to declare each of Shell’spermits valid, are highly unusual — forevery permit issued Shell filed a lawsuitagainst the environmental organizations thathad in the past opposed the company’splans.

“I’m not aware that’s ever been donebefore,” Fjelstad said. Normally the envi-ronmental groups will file a lawsuit, chal-lenging a permit and often waiting until themost awkward time before acting.

Judge Beistline in the District Court inAlaska is allowing the Shell lawsuits tomove forward, having refused to dismiss thecases. The environmental groups haveappealed Beistline’s decision to the Court ofAppeals for the 9th Circuit.

“Stay tuned,” Fjelstad said. “This is amajor, major strategic consideration aboutwhether companies will be able to continue


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announcing the sale date.The comment period and tract nomina-

tions for the sale ran from May 15through June 29.

A notice of sale will be submitted tothe Federal Register to be published atleast 30 days prior to the sale, which willbe the eighth oil and gas lease sale in

NPR-A since 1999. Last year’s sale generated 17 winning

bids covering some 120,000 acres. There are currently 186 authorized oil

and gas leases, some 1.48 million acres,within the NPR-A planning areas.

Only exploratory drilling has occurredwithin NPR-A, but Interior said that per-mits were issued to ConocoPhillipsAlaska in 2011 to allow for future pro-duction of NPR-A oil and gas resources.

—PETROLEUM NEWS

continued from page 6

SALE DATE


Some lessons learned in the Arctic OCSLawyer comments on the permitting situation as Shell’s drilling program in the Beaufort and Chukchi seas slowly moves forward

see OCS LESSONS page 8

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http://www.apicc.org


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to do this.”

Exploration EISSomething else to watch for in the future

is an EIS for Arctic offshore oil and gasexploration being prepared by the NationalMarine Fisheries Service in conjunctionwith the Bureau of Ocean EnergyManagement, Fjelstad said. The originaldraft of this document was very problemat-ic: It assumed much more future offshoreseismic activity than is likely to take placewhile placing significant restrictions on theamount of offshore drilling that might beallowed. Essentially, the proposal was tolimit drilling to two operations per year ineach Arctic sea, despite the fact that thereare currently three operators with seriousoffshore drilling plans.

The agencies are apparently now work-ing on revisions to the draft document, witha final version of the document expected inearly 2014.

And the question of multiple offshoredrilling operations will likely be the next bigpermitting issues.

“It’s one thing with one drilling opera-tion, but what about two, what about three?”Fjelstad asked.

Coastal zone management is anotherpermitting issue to watch for, possibly in theAlaska Legislature, given the recent debateon this topic, Fjelstad said. A citizen’s ini-tiative to reinstate an Alaska coastal zonemanagement program was defeated in arecent state election.

Is it possible?But Shell’s situation raises questions

about where Arctic offshore drilling will gofrom here, given the narrow summerdrilling window and the way in which icecomes and goes at various times. In the longterm, who will be able to conduct opera-tions in this type of environment? Is theArctic offshore just an arena for the biggestof the big players?

“You have to wonder, frankly, whetherwe have a situation where it is so hard that… even a company as big as Shell, with allits resources, can’t pull it off,” Fjelstadsaid. �


OCS LESSONS

Contact Alan Bailey at [email protected]

� F I N A N C E & E C O N O M Y

Judge dismisses Miller Energy lawsuitOther cases remain alive against the Tennessee-based parent of Cook Inlet Energy; shareholders allege fraud in stock price drop

By WESLEY LOYFor Petroleum News

Miller Energy Resources Inc. is making some headwayin defending against a flurry of lawsuits brought

against the company in 2011 after its stock price took anosedive.

On Sept. 21, a federal judge in Knoxville, Tenn., whereMiller is based, dismissed a case shareholders broughtagainst the company’s board of directors.

The shareholders sued derivatively on behalf of the com-pany, alleging the directors were culpable in misleadingpublic statements Miller issued on the value of oil and gasassets it acquired in Alaska’s Cook Inlet basin in late 2009.

Miller’s stock price plunged in the summer of 2011, inpart because of an online report purporting to expose thecompany’s overvaluation of its Alaska assets.

Company executives have stood by their valuation, andhave said the report was the work of short sellers looking toprofit from a decline in Miller’s stock.

Miller Energy shares trade on the New York StockExchange. The company is the parent of Anchorage-based

Cook Inlet Energy LLC, which operates an assortment ofoil and gas properties on the inlet’s west side.

‘Pleased with the outcome’Two shareholder derivative suits were filed against the

Miller board in late August 2011. The suits subsequentlywere consolidated into one case.

On Sept. 21, U.S. District Judge Thomas A. Varlan grant-ed Miller’s motion to dismiss the case.

The judge ruled plaintiffs skipped a necessary step. Heheld that under Tennessee law and federal court rules,before filing a derivative action a shareholder “must firstmake a written demand on the corporation’s directorsrequesting them to prosecute the suit or to take other suit-able corrective action.”

The lead Miller plaintiff, shareholder Patrick P. Lukas,admitted he didn’t do that, arguing it would have been “afutile, wasteful and useless act.”

“We are pleased with the positive outcome,” Miller’schief executive, Scott M. Boruff, said of the judge’s dis-missal. “We have maintained throughout this litigation thatthe cases were without merit, and this dismissal reflects that

in their rush to file, the plaintiffs did not carefully considerthe facts or follow the proper procedure in bringing theirclaims.”

More cases pendingBut Miller Energy is not yet in the clear with respect to

lawsuits filed in the wake of the stock collapse.A shareholder class action alleging stock fraud is pend-

ing in the federal court in Knoxville.This case also concerns the stated value of the Alaska

assets. The lead plaintiff is the Oklahoma FirefightersPension and Retirement System.

The plaintiffs say company executives “made false andmisleading statements” and violated accounting principles,which “artificially inflated” the price of Miller’s stock aheadof the crash.

Miller has filed a motion to dismiss. Judge Varlan is pre-siding over the case.

Yet another lawsuit, a derivative action, is pending in theKnox County Chancery Court in Knoxville. �

Contact Wesley Loy at [email protected]

http://www.nature.org/alaska


Natural gas from a 2004 discovery willbe connected to Kenai Peninsula

infrastructure by early next year under aproposal from Semco Energy subsidiaryAlaska Pipeline Co. now before theRegulatory Commission of Alaska.

APC has applied to extend its author-ized service area to include the route of theRed Pad Pipeline to be constructed on thesouthern Kenai Peninsula between HilcorpAlaska LLC’s Red Pad and APC’s AnchorPoint Pipe Line.

APC told RCA in a Sept. 14 filing thatHilcorp has stranded gas at its Red Padnortheast of Anchor Point, some 10 mileseast of APC’s Anchor Point Pipe Line.

Hilcorp has requested that the line beplaced in service on or before Jan. 1 ofnext year, APC told the commission, andsaid that “based upon the acceleratedmaterial acquisition program by bothHilcorp Alaska and APC, and the con-struction contract already awarded, APCanticipates that the Red Pad Pipeline willbe complete and ready to accept gas byearly December 2012.”

APC also filed a motion for expeditedconsideration of the application.

APC said Hilcorp has a well which iscurrently shut-in and requested that APCexpand its pipeline system on the southernKenai Peninsula so that stranded gas “andgas from subsequent drilling efforts” canbe made available to the SouthcentralAlaska market.

Discovery in 2004The Red Pad is in the Nikolaevsk unit

northeast of the Armstrong Cook InletNorth Fork unit at the southern end of theKenai Peninsula, some 14 miles southeastof Ninilchik and four miles northeast ofthe community of Nikolaevsk in an uplandlogged area.

Union Oil Company of Californiafound natural gas in 2004 at the Red No. 1well. The unit and Red Pad have sincechanged hands twice: Chevron acquiredUnocal in 2005 and in July 2011 Hilcorpacquired Union’s Cook Inlet assets.

In an agreement with the AlaskaDepartment of Natural Resources Divisionof Oil and Gas in early 2011, Union hadagreed to study the possibility of a linefrom the Red Pad, although the originalproposal was a line south to North Fork, toconnect to the line Armstrong Cook Inletwas building to connect with the 21-mileextension of its existing line on the KenaiPeninsula APC had completed.

Production from North Fork through anew line connecting to an APC extensionbegan in early 2011.

Pipe already purchasedThe pipe for the Red Pad Pipeline has

already been purchased by Hilcorp, APCtold RCA, and Hilcorp “has arranged forits expedited transportation to the con-struction site.” APC said a majority of thepipe is already in Alaska, most of it at thejob site, and with a contract for the majorconstruction contractor awarded, construc-tion crews were already working at the sitein mid-September.

APC said Hilcorp was also providing a

contribution in aid of construction to fundthe construction.

Daniel Dieckgraeff, director of ratesand regulatory affairs for APC and EnstarNatural Gas Co., said APC has two gassupply agreements with Hilcorp, and cur-rently has unmet gas supply requirementsfor 2013 and beyond.

Documentation provided to RCA showsa total project cost of $8.4 million. �


GOVERNMENTStedman named chair of The Energy Council

Alaska Sen. Bert Stedman, R-Sitka, has been named chair of The Energy Council,a legislative organization consisting of 11 states, five Canadian provinces andVenezuela. The council provides a forum for exchanges of idea, best practices andsound solutions on energy issues affecting Alaska, the nation and the WesternHemisphere.

Stedman has been on the council’s executive committee forfive years and was elected vice chair in late 2011.

The council’s focus this year is on three themes: Arcticdevelopment issues; fossil energy trends; and alternative ener-gy development.

“Within these themes, we will be examining several issuesthat are critical to Alaskans including energy exploration andtransportation in the Arctic, LNG exports from the U.S., Arcticshipping routes, federal regulation, and hydro development,”Stedman said in a statement.

The council does most of its work during four quarterly meetings that rotateamong member states and provinces, with a spring meeting in Washington, D.C.

Stedman called the meetings important to continued efforts to develop Alaska’senergy resources and promote greater collaboration between national policymakersand Alaska.

He said his “goal is get as many experts and leaders together as possible so thatwe can really target and transform the energy issues facing Alaska and the rest of theWestern Hemisphere.”

—PETROLEUM NEWS

Senate bill boosts legacy well fundingU.S. Sen. Lisa Murkowski says she’s trying to secure more money for the Bureau

of Land Management to deal with so-called legacy wells.Murkowski, R-Alaska, has been critical of the agency for neglecting dozens of old

government wells in the National Petroleum Reserve-Alaska. She and other Alaskaofficials say many of the wells were never properly plugged and abandoned, and thedrilling sites are polluted and junk-strewn. BLM officials have said they’ve madeprogress on remediating some of the wells, especially those imperiled by coastal ero-sion. But they cite the high cost of plugging the wells, many in remote locations.

The BLM is an agency within the U.S. Interior Department, and Murkowski is thetop-ranking Republican on the Senate Interior Appropriations Subcommittee.

Murkowski said the fiscal year 2013 Interior appropriations bill released Sept. 25includes $6.5 million for cleanup of legacy wells, up from $1 million in 2012.

“Uncapped wells are a blight on our state, and the federal government is derelict intheir duty to Alaska,” Murkowski said in a press release. She said her subcommitteecolleagues felt a funding increase to deal with the wells was “far overdue.”

The Navy and the U.S. Geological Survey drilled 136 exploratory wells and bore-holes between 1943 and 1982. They’re now under the purview of the BLM, whichmanages the petroleum reserve.

Ruth McCoard, spokeswoman for the BLM in Anchorage, told Petroleum Newsthe agency has no immediate plans to plug any legacy wells, but a couple were donerecently. In 2012, the BLM plugged two legacy wells near Umiat for $3.5 million.

She said the agency is working with the Alaska Oil and Gas ConservationCommission on a three-year plan to remediate priority legacy wells “and to positionourselves to take advantage of any additional funding that may be provided throughappropriation.”

—WESLEY LOY

BERT STEDMAN

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

Kenai line planned to connect Red Pad gasAlaska Pipeline, Hilcorp working jointly on 10-mile line to bringstranded natural gas from 2004 discovery into Enstar system


“Nikolaevsk natural gas pipeline will bestudied,” in May 22, 2011, issue atwww.petroleumnews.com/pnads/311288510.shtml

“State denies Red PA at Nikolaevsk unit,”in Jan. 23, 2011, issue atwww.petroleumnews.com/pnads/396324770.shtml

“State extends Nikolaevsk unit terms,” inMay 17, 2009, issue atwww.petroleumnews.com/pnads/544103310.shtml

“Chevron planning Nikolaevsk wells,” inFeb. 8, 2009, issue atwww.petroleumnews.com/pnads/309886540.shtml

“Unocal on third Nikolaevsk unit gasexploration well,” in Aug. 22, 2004, issueatwww.petroleumnews.com/pnads/652338641.shtml

“Unocal plans three pads at Nikolaevskunit,” in March 28, 2004, issue atwww.petroleumnews.com/pnads/279755638.shtml

“Unocal moves forward on Kenai gasexploration,” in Feb. 15, 2004, issue atwww.petroleumnews.com/pnads/755931447.shtml


ENVIRONMENT & SAFETY

http://www.gci-industrialtelecom.com/


The Alaska oil and gas industry is nothappy with the state’s present pro-

duction tax system, neither is the adminis-tration of Gov. SeanParnell. The AlaskaOil & Gas Congressheard from one ofthe state’s independ-ent explorers, fromthe Alaska Oil andGas Association andfrom the administra-tion on impacts ofthe 2007 passage ofthe current produc-tion tax, Alaska’s Clear and EquitableShare, or ACES.

Deputy Revenue Commissioner BruceTangeman said the administration wouldbe ready to discuss changes when the new

Legislature convenes in January. Tangeman told the Associated Press

Sept. 25 that Econ One Research has beenhired to advise the administration on oiltaxes. Specifically he said Econ One willlook at the oil production picture over thelast 10 years in Alaska and other oil-pro-ducing regions, research which Tangemansaid will lay the groundwork for changesto the state’s oil tax structure.

The contract with Econ One is for anamount not to exceed $658,000 andTangeman told AP that the goal is to keepthe firm on through January so they cantestify before lawmakers.

Not the same billTangeman told the Alaska Oil & Gas

Congress Sept. 19 that the previousadministration, which enacted ACES, haddone good research. But ACES as pro-posed wasn’t what the Legislature passed,he said, characterizing the bill that passed

as a drastic change from what was intro-duced, with months of work overtaken bychanges in the last 36 to 48 hours.

And he noted specifically that the pro-gressivity feature of ACES — progres-sively higher rates as the price of oil rises— went from a 0.2 percent proposal to 0.4percent.

He characterized as bizarre economicsthe premise that as the tax rate goes upthere will be more investment.

Tangeman said Alaska looked at the taxissue from a state perspective, decidingwhat rate of return the state would allowits oil producers. The state was stuck inthe mindset that the value of Prudhoe Baywas so great that the companies wouldcome to the state, he said. Tangeman saidreality is that the state needed to be com-petitive, and consider that in companyboard rooms the returns ACES allowedwould be compared to returns allowed bytax rates in multiple other jurisdictions.

AOGA’s viewKara Moriarty, executive director of

the Alaska Oil & Gas Association, thebusiness trade association for the industry,told the Oil & Gas Congress Sept. 18 thatat high oil prices, the North Slope shouldbe booming — and it’s not.

She contrasted activity in Cook Inlet,where the ACESproduction tax doesnot apply: “CookInlet is boomingright now,” and com-pared to four or fiveyears ago, people areback to work andexcited about oppor-tunities, she said.

Moriarty saidwhether the activityin Cook Inlet will lead to more productionis uncertain, “but at least the first steps arein the right direction.”

She compared production forecastsfrom the fall of 2007, when ACES passed,with forecasts for this fiscal year. In fiveyears, there has been “a 14 percent adjust-ment — in the wrong direction,” she said.The 2007 forecast for this fiscal year was675,000 barrels per day; the current fore-cast is 580,000 bpd.

The difference is almost 100,000 bpd,Moriarty said, blaming the state’s “veryuncompetitive tax rates.”

The ‘Nordstrom’ planBart Armfield, chief operating officer

of Brooks Range Petroleum Corp., anindependent moving toward its first pro-duction on the North Slope, said oil taxeshave changed three times since the com-pany came to Alaska: Under the originalterms, Brooks Range would have takenhome $31 per barrelwhen oil was pricedat $100 per barrel.

“There’s been a26 percent reductionin your net profitsunder ACES, and ittakes us down to$23.29,” he said.

He said he some-times wonders if thestate is “setting the stage for a close-outsale.”

What’s needed? He compared the state to a boutique

which has “very high-end expensivegoods and a limited market.”

What’s needed, Armfield said, is a mer-chant plan. His wife, he said, would call itthe “Nordstrom model.”

“And the Nordstrom’s model is toattract new customers; provide valueincentives for the current customers thatwe have in Alaska; expand that customerbase; promote repeat business. Customerloyalty is probably a key element of that,”he said.

Armfield said he considers Texas andNorth Dakota to be Alaska’s domesticpeers: They’re “holding anniversarysales.”

And their production is headed in theright direction, up.

“We can’t afford even one more year ofdelay on ACES reform,” he said, andencouraged Alaskans in the audience to lettheir elected representatives know they“strongly support a change.” �

� F I N A N C E & E C O N O M Y

Oil tax discussion up again in 2013Administration preparing for January; Armfield calls for ‘Nordstrom model’ — attractions for new customers, benefits for existing


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While Great Bear Petroleum contin-ues drilling shale oil test wells on

Alaska’s North Slope, expressing increas-ing confidence in achieving eventual suc-cess in what would be Alaska’s firstunconventional oil development, ques-tions have been raised over the applicabil-ity of Alaska’s current oil statutes andregulations to shale oil. Would lawsdesigned for conventional oil fieldsinvolving distinct oil pools in reservoirrocks work effectively in a situationwhere oil is extracted from a continuousoil source rock zone?

State officials have told PetroleumNews that the laws will work effectivelyfor shale oil, and that no modifications tothe laws are required.

Land leasingAlaska’s Department of Natural

Resources, the state agency responsiblefor the oversight and regulation of oildevelopment on state land, sells land leas-es to companies interested in oil and gasexploration. To encourage timely explo-ration and development, the leases haveterms, generally of seven to 10 years,after which they expire.

Following the discovery of a commer-cially viable hydrocarbon resource, leasesthat straddle the hydrocarbon pool aregenerally, but not necessarily, combinedinto what is termed a unit, to enable allcompanies with working interests in landcontaining the discovered hydrocarbonsto pool their resources as a single legalentity for hydrocarbon production. Andthe formation of the unit extends the leaseterms, allowing adequate time for oil orgas field development to proceed.

The Alaska Oil and Gas ConservationCommission, or AOGCC, the agency thatensures that the state’s oil and gasresources are not wasted through inappro-priate development, and which alsoensures that rights of ownership of pro-duced oil and gas are protected, definesrules for hydrocarbon pools in an oil orgas field, when that field is developed.And the agency specifies “participatingareas,” distinct hydrocarbon pools, oftenat different levels within a field: Eachparticipating area has a specified owner-ship, thus enabling the hydrocarbon pro-duction to be appropriately allocated tothe various companies with ownershipinterests in the field.

Hydrocarbon poolsQuestions around the applicability to

shale oil of this regulatory and legalscheme for exploration and developmentrevolve around whether the concepts ofoil pool, participating area or unit haveany meaning in a situation where oil per-meates a source-rock shale unit that isregional in extent. Rather than drillingwells into a distinct oil pool in a reservoirrock, with fluid pressure communicationbetween all wells accessing the oil in thepool, a shale oil development involves thedrilling of many individual wells across ashale oil fairway, with each well extract-ing oil from shale in its immediate neigh-borhood, with no pressure or fluid com-munication between adjacent wells.

And, in addition to questioning the rel-evance of oil pool related statues to shaleoil, a law firm operating in Alaska has

questioned whether the time limits onstate leases might discourage shale oildevelopment by forcing a developer todrill in all of its leases within a relativelyshort timeframe, rather than allowing pro-gressive development across a shale oilfairway, enabling the intense multi-welldrilling that is characteristic of a shale oilplay to start at one point and expand fromthere.

No change neededThere is no need to change any of the

state statutes to accommodate shale oil,Bill Barron, director of Alaska’s Divisionof Oil and Gas, told Petroleum NewsSept. 24.

The placing of time limits on leases toencourage timely exploration and devel-opment applies to a shale oil play in justthe same way as it does in a conventionalplay, Barron said. In fact, a conventionalplay may involve multiple exploration tar-gets across an extensive area, in an analo-gous manner to a shale oil fairway, hesaid. It is the responsibility of an operatorto plan its leasing, exploration and devel-opment activities to accommodate thetiming requirements.

“There needs to be a plan of develop-ment and that becomes the responsibilityof the leasing party,” Barron said.

Moreover, were the leasing rules forunconventional and conventional oil

plays to differ, a significant problemwould arise in situations where unconven-tional and conventional resources arestacked at different levels within the sameland tract, Barron pointed out.

And, while it is true that the conceptsof units and oil pools have little relevancein a shale oil play, rather than trying tochange the statutes, the existing statutescan be applied to a shale oil developmentby simply not unitizing. In effect, theshale oil accessed by each shale oil wellbecomes a “unit” for that well, with eachwell having its own clearly defined own-ership.

“To my knowledge no other state hasunitized on shale … shale doesn’t meetthe requirements for unitization,” Barronsaid.

Combined playsIt is possible to envisage a situation in

which a conventional oil pool, underdevelopment, would be stacked above orbelow a shale oil zone, also under devel-opment. In that case a participating areawould be defined for the conventionalpool, but that participating area would notextend vertically into the shale oil.

However, were the conventional oilfield to be unitized, the unit boundarywould extend vertically through the shaleoil. In that particular situation, the unitboundary, where it intersects the shale oilhorizon, would define the limits of a sep-arate participating area within the shaleoil — outside the unit boundary the shaleoil participating area would cease to exist,Barron said.

The only issue that the state hasencountered in selling leases over a shale

oil play relates to the legal right of anoperator to hold a lease beyond its expirydate if there is at least one producing wellwithin the lease, Barron said. Thatarrangement works for a conventionalplay in which that one well can be in com-munication with an entire oil pool. But inan unconventional play an operator coulduse this aspect of leasing law to hold acomplete lease by drilling a single wellinto the shale oil zone. To overcome thispotential problem, the state, in its lastNorth Slope lease sale, divided leases onrecognized shale oil fairways into quartertracts, Barron explained.

AOGCC viewAOGCC Chair Cathy Foerster agrees

with Barron that state statutes do notrequire modification to accommodateshale oil development.

“For shale ‘the pool’ is going to bewhatever one well can drain and so youdon’t need to unitize, you don’t need topool,” Foerster said.

To minimize the number of wellsdrilled in a shale oil development, andhence to optimize the development eco-nomics, a shale oil developer will notspace wells closely enough for fluid com-munication between one well and another.In effect the oil extraction zone aroundeach well then becomes the “pool” forthat well, with the ownership of the welloperation determining the ownership ofthe produced oil.

The onus is going to be on an operatorlike Great Bear to demonstrate to us whatone well is capable of draining and, there-fore, what their allowed well spacingwould be, Foerster said. �


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Applying state statutes to shale oilState officials say current Alaska laws will work effectively for the management of unconventional oil development in the state


“A legal perspective on NS shale oil,” inAug. 12, 2012, issue atwww.petroleumnews.com/pnads/852332922.shtml

BILL BARRON CATHY FOERSTER

“To my knowledge no other statehas unitized on shale … shale

doesn’t meet the requirements forunitization.” —Bill Barron, Alaska

Division of Oil and Gas director

“For shale ‘the pool’ is going to bewhatever one well can drain andso you don’t need to unitize, youdon’t need to pool.” —Cathy Foerster,

Alaska Oil and Gas Conservation Commission chair



Within 24 hours of being appointed,Quebec’s new Natural Resources

Minister Martine Ouellet told reportersshe does not believe natural gas can everbe safely extracted from shale rock usingfracturing methods.

She has pledged to impose a completemoratorium on the industry until a newand more comprehensive assessment ofthe industry is completed by her govern-ment’s environmental assessment bureau.

Quebec, under the Liberal governmentof Premier Jean Charest that was defeatedin September by the separatist PartiQuebecois, had already stopped shale gasexploration to conduct more studies onthe environmental risks. Including fearsthat drinking water could be contaminat-ed.

The Parti Quebecois is committed toan independent Quebec, although twoprevious referendums seeking approvalfor separation have been defeated.

Analysts and industry leaders viewQuebec’s trillions of cubic feet of shalegas resources as an economic gamechanger for the province.

But Ouellet wasted no time declaringthat she does not “foresee a day whenthere will be technology that will allowsafe exploitation” of shale gas.

Current suspensionAndre Boisclair, a consultant for

Questerre Energy, which holds a majorshale gas land position in Quebec, saidthe call for a moratorium doesn’t havemuch impact on the industry, given the

current suspension of existing or plannedoperations.

The environmental review is notexpected to wrap up until late 2013.

The bigger concern is Ouellet’s indica-tion that she doesn’t believe shale gasexploitation can ever be safe “is obvious-ly totally contrary to the facts,” Boisclairsaid.

He said 30 percent of the gas Quebeccurrently imports from Western Canada isderived from unconventional extractionmethods.

Boisclair said it is “inappropriate for a(cabinet minister) who intends to do apublic consultation on shale gas to havealready drawn her own conclusions on thefile.”

Michael Binnion, president ofQuesterre, which has invested aboutC$200 million with its partner TalismanEnergy in shale gas exploration inQuebec, said Ouellet’s position is “frus-trating.”

He said Questerre has made everyeffort to cooperate with Quebec’s two pre-vious environmental assessments.

Binnion said that preventing shale gasdevelopment in the province would onlybenefit producers in Western Canada andthe United States, who meet Quebec’scurrent gas needs.

Talisman remains hopeful that the newgovernment will continue the reviewprocess and develop a legislative frame-work that would permit safe and responsi-ble shale gas development, a spokes-woman said. �


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TransCanada: Lineinterest encouragingNonbinding open season closed in mid-September; company neverable to secure firm shipping agreements after 2010 open season

By BECKY BOHRERAssociated Press

TransCanada Corp., the company thatholds an exclusive license to build a

major natural gas pipeline in Alaska, hasbeen encouraged by results of a recent mar-ket solicitation, a spokesman said Sept. 21.

TransCanada has received interest frompotential shippers and “major players froma broad range of industry sectors and geo-graphic locations,” including NorthAmerica and Asia, Shawn Howard said in astatement.

The statement didn’t indicate if prefer-ence was shown for a project that wouldserve North America markets, or for onethat would allow for liquefied natural gasexports overseas.

The nonbinding solicitation ended Sept.14, and the expressions of interest are justthat: not firm commitments to any oneproject. TransCanada is required by termsof its agreement with the state to gauge

market interest every two years. In 2010, the company held an “open

season,” which was a three-month period ofcourting gas producers in an effort tosecure shipping agreements. The companyproposed two options: a pipeline that wouldrun from the North Slope into Canada andserve North America markets and one thatwould lead to a liquefied natural gas facili-ty that could export fuel by ship.

Parnell calls for LNG projectThat process didn’t yield any publicly

announced shipping commitments for gas,causing Gov. Sean Parnell last year to urgethe North Slope’s three major players —Exxon Mobil Corp., BP PLC and ConocoPhillips — to coalesce behind a project thatwould allow for liquefied natural gasexports to the Pacific Rim if the market hadindeed shifted from the Lower 48.

In his State of the State address earlierthis year, Parnell said he expected the com-

see LINE INTEREST page 13

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panies to identify a project and associat-ed work scheduled by the end ofSeptember, as well as to harden its num-bers on a project.

Parnell said he anticipates andexpects that TransCanada and the oilcompanies will be able to meet thebenchmark. “I think that that’s Alaska’sexpectation that they (the companies)will align on project concept selectionfor an LNG line to tidewater in Alaska,”he said, adding that this is his expecta-tion, and he hasn’t had it confirmed yetby TransCanada or the companies.

Howard said merely thatTransCanada continues to work with thecompanies to evaluate options.

A spokeswoman for BP Alaska,Dawn Patience, said her company hasbeen “responsive to the governor’srequests” and is working with the othersto commercialize Alaska natural gas.

A spokeswoman for Conoco Phillipsin Alaska, Natalie Lowman, said thecompanies are continuing their work“regarding our effort to evaluate the eco-nomic viability of an Alaska North Slopeliquefied natural gas export facilitylocated in Southcentral Alaska.”

Exxon Mobil spokesman DavidEglinton said progress was being made. �



LINE INTEREST

GOVERNMENTArctic policy commissioners appointed

Alaska Senate Pres. Gary Stevens and House Speaker Mike Chenault havemade their appointments to the Alaska Arctic Policy Commission, created duringthe past legislative session to help develop the state’s Arctic policy and strategy.

The commission was a recommendation of the Northern Waters Task Force andwas created with passage of House ConcurrentResolution 23. Stevens and Chenault chose 20members and four alternatives, including threesenators and three representatives and mem-bers from areas ranging from federal and trib-al governments to the logistics industry andtribal entities.

Appointees from the Legislature are: Sens.Lyman Hoffman, D-Bethel, Cathy Giessel, R-Anchorage and Bert Stedman, R-Sitka; andReps. Alan Austerman, R-Kodiak, BobHerron, D-Bethel and Beth Kerttula, D-Juneau.

Other appointees include: Pat Pourchot, special assistant to the Secretary of theInterior (federal government); Reggie Joule, Native Village of Kotzebue (KotzebueIRA/tribal entity); Stephen Trimble, URS Corp. (mining industry); Lisa Pekich,director of village outreach, ConocoPhillips Alaska (oil and gas); LawsonBrigham, distinguished professor, University of Alaska Fairbanks (university);Stephanie Madsen, executive director, At Sea Processors Association (fisheries);Chris Hladick, Unalaska City manager (local government); Denise Michels, Nomemayor (coastal community); Nils Andreassen, Institute of the North managingdirector (international Arctic organization); Layla Hughes (conservation group);Steve Scalzo, Foss Marine Holdings chief operations officer (marine transportationand logistics); Elizabeth Moore, NANA regional corporation community and gov-ernment affairs manager (ANCSA corporation); and Peter Garay, American PilotsAssociation (marine pilots).

The commission will meet in Arctic areas around the state and in Anchorageand Fairbanks over the next two years and will provide preliminary policy recom-mendations by Jan. 30, 2014, and a final report by Jan. 30, 2015.

—PETROLEUM NEWS

The commission will meetin Arctic areas around the

state and in Anchorage andFairbanks over the next

two years and will providepreliminary policy

recommendations by Jan.30, 2014, and a final report

by Jan. 30, 2015.

� I N T E R N A T I O N A L

UK lawmakers seekmoratorium on drilling

ASSOCIATED PRESS

International governments should seek amoratorium on offshore drilling in the

Arctic amid concern an oil spill in theregion could cause catastrophic environ-mental damage, British lawmakers saidSept. 20.

The Environmental Audit Committee ofBritain’s House of Commons urged actionto halt oil and gas drilling in the Arctic untilnew safeguards — including vastlyincreased financial guarantees and univer-sal standards on disaster response — areput in place.

Legislators on the panel also called foran internationally recognized nature sanc-tuary to be created to protect at least part ofthe Arctic from energy exploration.

Caroline Lucas, a member of the com-mittee and the only Green Party lawmakerat Britain’s Parliament, said the panel’sfindings came as “the race to carve up theArctic is accelerating faster than our regu-latory or technical capacity to manage it.”

Recommendations by the panel are notbinding on Britain’s government, and inresponse the country’s foreign ministrysaid only that it would consider the propos-als.

Experts warned the panel that anyblowout in the Arctic at the end of the sum-mer drilling season could be disastrous, asthe returning winter ice would likelyseverely hamper the response.

In a report, legislators said that the factArctic drilling locations are remote meansresources to manage accidents are likely tobe difficult to access or unavailable.Because shorelines are sparsely populated,it would also be more difficult to detectevidence of a spill.

“The infrastructure to mount a bigclean-up operation is simply not in placeand conventional oil spill response tech-niques have not been proven to work insuch severe conditions,” Walley said.

Legislators called on Britain to lobbythe Arctic Council — an intergovernmentalforum of the eight Arctic nations, includingthe United States and Canada — to craft auniversal standard on disaster response.

The panel also suggested a “much high-er, preferably unlimited, financial liabilityregime for oil and gas operations.”

Britain’s energy and climate changeministry said that, given the U.K.’s lack of“expertise or experience of Arctic issues,”nations in the region should take the lead.

Charles Emmerson, an energy expert atthe London-based Chatham House thinktank, said it was “extremely unlikely” thatnations competing over Arctic resourceswould agree to a single regulatory frame-work.

Richard Steiner, an Alaska-basedmarine conservation consultant who gaveevidence to the committee via video link,urged the eight Arctic coastal nations andthe U.N. to adopt the report’s recommenda-tions.

“It represents the first time a govern-mental body has really and honestly sug-gested what needs to happen to manage theArctic responsibly,” he said. “The U.K.Parliamentary body has proposed a realis-tic road-map for Arctic stewardship.”

Environmental groups strongly opposeArctic offshore drilling, claiming oil com-panies have not demonstrated the ability toclean up spilled crude in ice. Operating inone of the world’s most hostile marineenvironments is a risk to its polar bears,walrus and endangered whales, the groupsclaim.

Shell has limited Arctic drilling offAlaska to preparation work this year after asafety system was damaged during testing.

However, Marvin Odum, head of ShellOil Co., Royal Dutch Shell’s U.S. sub-sidiary, insists it is optimistic about tappinginto an estimated 26 billion barrels ofrecoverable oil and 130 trillion cubic feet(3.68 trillion cubic meters) of natural gas inU.S. Arctic waters.

In evidence to the British committee,Robert Blaauw, a senior Shell adviser onthe Arctic, said energy demand over thecoming decades made it necessary forcompanies to look to “unconventionalresources” such as those in the Arctic.

The company said that it welcomed dia-logue on Arctic energy exploration. �



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LAND & LEASINGDeals struck on Sword, Sabre prospects

Cook Inlet Energy LLC says it has signed deals to acquire Hilcorp AlaskaLLC’s 30 percent interest in two leases covering the Sword and Sabre prospectson the inlet’s west side.

The companies executed two “farmout agreements” on Sept. 20, said a pressrelease from Miller Energy Resources Inc., the Tennessee parent of Anchorage-based Cook Inlet Energy.

The two prospects are adjacent to the West McArthur River unit, which opera-tor Cook Inlet Energy says has produced more than 13 million barrels of oil todate.

Cook Inlet Energy, which held a 70 percent working interest in both leases,“will earn Hilcorp’s interest upon completion of one commercial well in each far-mout area,” the press release said.

Cook Inlet Energy said it anticipates drilling the wells within the next threeyears, ultimately gaining 100 percent working interest and full control over bothprospects.

“Sword and Sabre prospects show great potential,” said Cook Inlet Energychief executive David Hall, citing internal company estimates of up to 20 millionbarrels of oil and 14.3 billion cubic feet of natural gas.

—WESLEY LOY

ALTERNATIVE ENERGY

Fire Island turbines go onlineThe 11 wind turbines on Fire Island just off Anchorage started providing

power to Southcentral Sept. 24.KSKA reports (http://is.gd/7nb1cO) the project is the first to provide

renewable power for Anchorage and the surrounding area.The project was built by Cook Inlet Region Inc., a Native corporation.State and federal grants helped with the $65 million price tag.CIRI official Suzanne Gibson says they selling to Chugach Electric

Association. It’s estimated that the turbines will provide 4 percent ofChugach’s power for its retail customers, or enough electricity for 4,000homes.

—ASSOCIATED PRESS


Shell sues Greenpeaceover demonstrations

ASSOCIATED PRESS

R oyal Dutch Shell PLC is takingGreenpeace International to court in

an attempt to have the environmentalorganization banned from holding anyprotest within 500 meters (1,640 feet) ofany Shell property, or face a 1 million euro($1.3 million) fine.

The suit at Amsterdam’s District CourtSept. 21 shows Shell aggressively takingthe offensive to protect its $4.5 billioninvestment in drilling for oil in the icyArctic waters off the coast of Alaska. A ver-dict is not expected for two weeks.

Shell is headquartered in The Hague,Netherlands, while GreenpeaceInternational is based in Amsterdam.

The oil company said in a statement sev-eral of Greenpeace’s recent actions have“have gone well beyond the limits ofacceptable protest.”

“Shell continues to respect the legiti-mate right of people to peacefully protestagainst the activities we undertake toensure the world’s energy needs are met,”the statement said.

Shell asked for the ban to go into effectimmediately and last six months. AlthoughShell says the ban it is seeking is limited tothe Netherlands, Greenpeace spokesmanAaron Gray-Block said Shell is also askingthat Greenpeace International not supportsuch actions in other countries.

Greenpeace called the move a “legalsledgehammer to stifle public discourse.”

The group argues that drilling in theArctic is inherently risky and Shell’s safetyplans are inadequate.

But Shell has fought its way throughnumerous environmental and safety chal-lenges in the U.S. licensing process beforebeing granted two permits for exploratorydrilling in the Chukchi and Beaufort Seas.

The company expects the projects even-tually to create hundreds of jobs.

Greenpeace activists have been involvedin two attempts to thwart Shell-ownedships from traveling to the Arctic. In May, aU.S. court ordered the organization toremain at least a kilometer (around half amile) away from any of Shell’s ships boundfor Alaska, within 200 miles of shore inU.S. waters.

Greenpeace has protested Arctic drillingwith other stunts around the world, but thetrigger for the Sept. 21 lawsuit was a Dutchdemonstration on Sept. 14, in which

Greenpeace protesters blocked more than70 Shell gas stations in the Netherlands forseveral hours, draping banners and clamp-ing gas pump handles together with bikelocks.

Fifteen people were arrested. Shell hasnot put forward any estimate of how muchdamage it suffered.

“Because Greenpeace Internationaldoesn’t operate alone, but is the spider inthe web of national and local organizations,our request includes that Greenpeaceinform its satellite organizations that it nolonger supports protests that are solelydirected at causing Shell economic damageor that bring human lives and the environ-ment in danger,” Shell’s complaint said.

Greenpeace campaigner Ben Ayliffesaid Shell was “in no position to accuseothers of being reckless or unsafe,” giventhe difficulties the company may face if anoffshore spill occurs in the Arctic amid badweather.

The past weeks have proved eventful forShell’s two Arctic projects, which would bethe first in those waters for years.

Drilling in the Chukchi was delayed,first due to a dangerously large ice floedrifting toward its movable platform, andthen after a dome the company might use tohelp contain any potential spill failed dur-ing a test overseen by the U.S. Coast Guard.

Shell received the second of its two finalpermits for exploratory drilling on Sept. 20from the U.S. Bureau of Safety andEnvironmental Enforcement, for theBeaufort project. On the same day, scien-tists at the National Snow and Ice DataCenter announced the annual Arctic sum-mer sea-ice melt — the July-October peri-od that is Shell’s opportunity for drilling —had reached the greatest extent on recordearlier in September, possibly as a result ofglobal warming.

But Shell said it has scaled back ambi-tions for this season and will only drill “topholes.” Such holes don’t reach down to thelevel where oil and gas is located, but theycan be turned into completed wells morequickly next year.

Greenpeace and Shell have a long histo-ry of conflict, most notably when activistsoccupied the Brent Spar oil platform inthe North Sea in 1995, as part of a cam-paign that eventually forced Shell toabandon plans to dispose of the platformat sea. �

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Oil Patch BitsCrowley receives 13th Quest for Quality Award

Crowley Maritime Corp.’s liner services group said Sept. 19 that itwas named among the “Best of the Best” for the 13th time inLogistics Management’s 29th annual Quest for Quality Awards.This year also marks the third consecutive year the companyhas received the award. Crowley’s Steve Collar, Pete Noyerand Frank Larkin will accept the award at the annual 2012Quest for Quality Awards gala dinner Oct. 3 in Atlanta.

Among the 13 winners in the ocean carrier’s category,Crowley ranked first in equipment and operations, second incustomer service and third in on-time performance with highgrades in value and information technology.

The awardees were chosen after an extensive survey collected votes from more than4,700 magazine readers who each have responsibility for buying transportation and third-party services.

“To win this award three years is in a row is a true honor. Crowley having been chosentime and time again demonstrates the fact that our customers recognize the efforts of ourdedicated employees and also the investments we continually make in our equipment andtechnology,” said Tom Crowley Jr., chairman, president and CEO. “We are very pleased and

grateful to be recognized by our customers and by Logistics Management magazine as one ofthe top performing shipping and logistics companies in the world.”

AES employee reappointed by Gov. ParnellASRC Energy Services said Sept. 20 that Gov. Sean Parnell has reappointed Phillip

Galloway of Wasilla to the Safety Advisory Council. Galloway, of Wasilla, is a health, safety,environmental, and training specialist with ASRC Energy Services. He has filled numeroussafety roles throughout his career in the telecommunications, insurance, oil and gas, and min-erals exploration industries.

Galloway also teaches classes as adjunct faculty for Kenai Peninsula College’sOccupational Safety and Health program, and he served for 25 years in the U.S. Air Force as atelecommunications maintenance technician. He earned a master’s degree in business organi-zational management from the University of La Verne in California, has numerous profession-al certifications, and is reappointed to a seat representing industry.

AES has been operating since 1985 and employs close to 5,000 people working in morethan 30 states. AES is a leading oil and gas service company with headquarters in Anchorage,Alaska, and is the largest private employer in the state, with annual revenues of approximate-ly $635 million.

see OIL PATCH BITS page 17

The company is using state-of-the-artseismic technology involving the place-ment of small, independent wirelessrecording nodes on the ground or on theseafloor, thus avoiding the environmentaldisturbance associated with the laying ofseismic cables.

Apache now wants to conduct a surveyup the west side of the southern KenaiPeninsula, recording data offshore thepeninsula as well as onshore. But,although the company obtained aNational Marine Fisheries Serviceauthorization for the unintended, minordisturbance of marine mammals for theoffshore survey that it has already con-ducted, the Fisheries Service has yet toissue a similar authorization for Apache’ssurvey to the south.

The Fisheries Service has already pub-lished an environmental assessment cov-

ering the entire inlet for Apache’s seismicwork, Hendrix said.

Corps of EngineersThe U.S. Army Corps of Engineers has

also told Apache that the acousticrecorders that Apache plans to place onthe seafloor off the southern KenaiPeninsula constitute a hazard to shippingand will require a permit under the Riversand Harbors Act, Lisa Parker, ApacheAlaska’s manager, government relations,told Petroleum News. But the Corps willnot issue that permit until Apache hasobtained its Fisheries Service authoriza-tion, Parker said.

One environmental concern in thewaters of the inlet is the potential impacton Cook Inlet beluga whales, which havebeen listed under the Endangered SpeciesAct. But Apache’s survey in the northernpart of the inlet did not cause a single dis-turbance to a beluga whale, Hendrix said.For that survey, Apache provided appro-

Asia-Pacific nations for years to come,”he said.

Oliver’s sales pitch to top energy offi-cials and business leaders in Japan andSouth Korea conveyed a clear message:the government of Prime MinisterStephen Harper is now pinning greaterhopes on LNG than on oil sands crudeexports into Asian markets.

There is little doubt that BritishColumbia alone has the gas resources toback LNG ventures.

Equally important, British ColumbiaFirst Nations show more enthusiasm forLNG as a potential source of revenue fortheir communities, while the oppositionthat threatens to stall or scuttle plans forcrude oil exports has yet to spill over intothe LNG sector.

How many projects?But not everyone shares Oliver’s boos-

terish view that Canada can launch sever-al LNG projects this decade.

Real Cusson, senior vice president formarketing at Canadian NaturalResources, has estimated that five proj-ects could cost C$50 billion-C$75 billionto construct and argued it would be moreprofitable to use Canada’s surplus gas forits domestic power-generation sector,which relies heavily on coal in Albertaand Saskatchewan.

In addition, he said there is a concernabout the availability of skilled workers toconstruct pipelines and LNG plants inremote corners of northwestern British

Columbia.But Oliver countered that LNG propo-

nents are confident they can proceed,especially given the hunger by Asian mar-kets for a secure source of gas.

“The private sector is going to deter-mine the economics of LNG, but they cer-tainly are of the view that it is realistic,”he said. “And there is certainly a beliefamong everyone involved that the eco-nomics do in fact work and that, for theJapanese and Koreans, Canada can repre-sent a reliable supply of significant size.”

Competition an issueBut he stressed it is vital that Canadian

LNG developers waste no time if they areto head off competition from Australiaand other suppliers.

“There is, without a doubt, a role forCanada to play in (the Asian) market-place. But they’re not going to wait forev-er. So we’ve got to get moving.”

To that end, Oliver said the Canadiangovernment is doing all it can to stream-line environmental assessments andimplement its “one project, one review”policy.

He also brushed off concerns thatCanadian companies are planning toexport a greater volume of gas than is cur-rently consumed in Ontario and Quebec,Canada’s two most populous provinces.

“We have well over 100 years supply ofgas,” he said. “We don’t have the con-straint based on our internal needs that theAmericans have.”

Oliver did acknowledge the underlyingFirst Nations and public opposition inBritish Columbia to LNG exports, espe-

cially to the use of multi-stage fracturingto release gas from shale deposits, butsuggested it does not match the resistanceto pipelines carrying oil sands crudeacross the province.

Shell Chief Executive Officer PeterVoser echoed Oliver’s warnings, sayingCanada likely has only until the end ofthis decade to build an LNG industry orget overtaken by other countries lookingto take advantage of the booming Asiandemand.

What pricing?Away from the public spotlight, LNG

exporters and potential Asian customersare engaged in crucial discussions on thepricing of Canadian LNG.

Tim Wall, president of Apache Canada,operator of the Kitimat LNG project, saidthe joint-venture with EOG Resourcesand Encana is offering prospective Asianbuyers oil-indexed pricing for its gas.

But he said some Japanese buyers pre-fer to import LNG from North America atHenry Hub gas prices, which were at 10-year lows earlier this year, while othersdon’t.

Because of the horse-trading that istaking place, Wall said there was nochance of concluding sales and purchaseagreements by the earlier target of thethird quarter.

However, he was unwilling to providea revised schedule because of the ongoingtalks that have been under way “for quite

some time.” A natural gas conference in Calgary in

late September was told that the LNGbuyers prefer the structure of plannedexport plants in Western Canada, with thevalue chains incorporating upstream andmidstream development, over the UnitedStates Gulf Coast model in which theysimply acquire export capacity.

Edward Kelly, vice president of NorthAmerican gas consulting with IHS GlobalConsulting, said there is a “huge contrast”between Gulf Coast and WesternCanadian projects.

He said that if a project is built fromscratch, with new wells, pipes and lique-faction facilities, that is a “much morefamiliar and a much more comfortablestructure to the Asian buyers than going toa U.S. Gulf Coast LNG facility and sim-ply taking a position in the export capaci-ty.”

However, trading-oriented Japanesebuyers who are taking positions in GulfCoast facilities are able to “get their gasearlier at a lower initial cost and lower all-in capital costs, or they can hard-wire anentire value chain” in Western Canada, hesaid.

Kelley also said Canada, like Australia,is considered a lower political risk coun-try than the U.S.

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CGGVeritas to acquire Fugro’s Geosciences DivisionCGGVeritas said Sept. 20 that it has entered into an agreement with Fugro to acquire

Fugro’s Geosciences Division, excluding the existing Multi-Client library and nodes busi-nesses.

With this transformative agreement, CGGVeritas will become a fully integratedGeoscience company establishing a leading position in the fast growing high-end inte-grated geology and geophysics and reservoir market. The transaction will also strengthenand extend its existing equipment and acquisition businesses, in particular with the addi-tion of four high-end 3-D vessels.

The transaction has been approved by both the CGGVeritas and Fugro boards of direc-tors.

The completion of the transaction is subject to mandatory anti-trust clearances, workcouncils consultation processes and other customary conditions. Closing is targetedbefore year-end.

“I am very enthusiastic about the transaction. It perfectly fits our strategy, significantlyincreasing our integrated geology and geophysics, reservoir characterization and develop-ment capabilities, along with strengthening our core equipment and acquisition offer inparticular with immediate access in marine to high end vessels at a time of market recov-ery,” said Jean-Georges Malcor, CEO of CGGVeritas. “It also extends our service range tonew customers and additional markets such as airborne. The acquired business of Fugro’sGeoscience Division fully complements our products and services and enables us to betterserve our clients across the complete exploration to production value chain.”

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


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Korean buyers of liquefied natural gasand their government officials, who areinfluential in contract decisions.

Sullivan spoke at the Sept. 19 LNGProducers-Consumers Conference inTokyo. With about 1,000 attendees, it wasthe world’s largest gathering of seniorgovernment officials from LNG produc-ing and consuming countries, as well assenior business executives from thelargest LNG producers and buyers, hisoffice said. In addition to numerous meet-ings with individual companies and gov-ernment offices, the U.S. Embassy ofJapan put together an event in whichSullivan gave a presentation on Alaskagas and mineral opportunities that 70people attended.

As well as pushing the benefits of buy-ing Alaska gas, Sullivan took advantageof LNG buyers’ interest in getting in onthe drilling and production part of thebusiness.

“The downstream is always looking tohave a piece of the upstream,” he said.

“‘You want upstream investmentpotential,’ I said, ‘here’s our lease saleinformation. And, by the way … youmight find a lot of oil, too. If you areinterested, see me afterwards,’” he saidduring presentations.

Several companies asked for informa-tion.

“We sent out six or seven CDs today,”offering to follow up with “a lot moreinformation,” as well as meeting withcompanies.

“We can send our DNR’s resourceteam to meet with them,” Sullivan said.“Bill Barron and his team have been trav-

eling a lot to give people the details.”While declining to name the compa-

nies that asked him for more informationabout Alaska’s oil and gas resource, hedid say, “they were all very respectableKorean and Japanese companies,”upstream and downstream.

“It’s kind of tight if they are looking atbidding in the November lease sale,though.”

Sullivan said DNR has been “makingthe pitch” to invest in Alaska “all over thecountry, all over world” and not just foroil and gas. At the U.S. Embassy functionin Japan, his presentation includedAlaska’s strategic and critical minerals.

“We do this very regularly,” he said.“Sometimes it doesn’t lead to anything;sometimes it leads to follow up with moredetailed briefings; some ultimately par-ticipate in a lease sale.”

Main emphasis was LNGStill, the main focus of the trip was to

promote Alaska gas.“The biggest thing I emphasized was

the competitiveness of Alaska LNG. …And I certainly was not adverse as to whatI saw as shortfalls in other potential sup-pliers, Alaska’s competitors,” Sullivantold Petroleum News in a Sept. 25 inter-view.

“I took the gloves off with Kitimat,” hesaid referring to the proposed LNGexport terminal in British Columbia.

“They haven’t touched their Nativeclaims issue. It can take years to resolve.… Alaska’s First Nation and Native landclaims issues have already beenresolved.”

Another challenge for Kitimat, he said,is that it’s a shale gas resource.



SULLIVAN TALKS LNG

Parnell in Asia seeking support for Alaska natural gas

Gov. Sean Parnell went to Japan and South Korea, seeking to drum up support forAlaska natural gas. The trip, which is expected to concentrate on Japan, began Sept.24 and was expected to conclude Oct. 1.

It is Parnell’s second state-sponsored overseas trip as governor.In an interview just prior to his departure, he said he plans to make a “compelling

case” for Alaska gas in meetings with government officials, and utility company andbusiness leaders in South Korea and Japan. He said he will explain the progress that’sbeen made toward commercializing Alaska’s North Slope gas and emphasize thecomparative advantage Alaska holds over others, noting a more-than-40-year histo-ry of liquefied natural gas exports to Japan from a plant in Nikiski on the KenaiPeninsula.

Having that trust with a trading partner can leadto increased sales of Alaska gas, which can alsohelp meet the recipient country’s needs, Parnellsaid.

“This is a trading relationship that has been fos-tered and maintained for decades, and I’m workingto grow it across the years to come,” Parnell said inan interview Sept. 21. “I’m not going over therewith an MOU (memorandum of understanding) tosign or anything. That’s not my goal. My goal issimply to work to grow demand for Alaska gas in Japan by opening their eyes to theopportunity that can come with LNG from Alaska.”

Parnell said he remains convinced that the market for Alaska gas exists in Asia,rather than overland to the Lower 48.

TransCanada holds an exclusive license with the state to advance a line, andParnell last year called on the North Slope’s three major producers — ExxonMobil,BP and ConocoPhillips — to get behind a project that would allow for liquefied nat-ural gas exports to the Pacific Rim if the market had shifted from the Lower 48.

State officials have said Alaska is closer than ever to its dream of a major gaspipeline, but significant challenges remain.

For example, there’s no firm project yet, though the CEOs of the three major pro-ducers have agreed to focus on a large-scale LNG project and to work withTransCanada so efforts toward a pipeline will be coordinated. (ExxonMobil hadalready partnered with TransCanada.) Parnell has set an end of September deadlinefor the companies to identify a project and associated work schedule and said heexpects the benchmark to be met.

Any project will easily cost in the tens of billions of dollars, and the CEOs havealready said that “unprecedented commitments of capital” for gas development bythe companies will first require “competitive and stable” terms on taxes from thestate — a simmering, contentious issue in the Legislature.

Still, Larry Persily, federal coordinator for Alaska natural gas pipeline projects,

said the administration is doing the right thing by sending officials to Asia.While there’s no definitive project yet, “everyone else in the world is over in Asia

and Japan and China and South Korea touting their proposed, tentative, plausible,theoretical projects, so it behooves us to be there, too, making sales calls,” Persilysaid.

Parnell’s natural resource commissioner, Dan Sullivan, just returned from Japanand South Korea (see adjacent article), where he addressed a major conference ofLNG producers and consumers in Tokyo, and met with utility and government offi-cials. Parnell is to build on that, meeting with higher-level officials.

Sullivan said Sept. 24 that while Alaska isn’t as far ahead as other gas-producingregions, it has clear advantages, including a stable government and vast resource thatcan help diversify the global supply chain. He said there is “a lot of interest” in hav-ing Alaska as another large-scale source of supply.

—BECKY BOHRER, ASSOCIATED PRESS

see SULLIVAN TALKS LNG page 19

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Gov. Sean Parnell attended an energy-focused luncheon sponsored by Chairman KyungShik Sohn of the Korea Chamber of Commerce and Industry Sept. 24.

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Parnell said he remainsconvinced that the

market for Alaska gasexists in Asia, ratherthan overland to the

Lower 48.

“It will take hundreds, if not thou-sands, of wells to develop,” noting thatPrudhoe Bay alone “reinjects 8 billioncubic feet of gas per day,” which isenough to meet Canada’s daily gas needs.

Alaska low on risk“A lot of these proposed LNG export

projects, such as Cheniere (EnergyPartners) in Louisiana, do not have theadvantages we do — there’s no resourcerisk with a North Slope LNG project. It’sconventional gas. With shale gas, youdon’t always know where it’s comingfrom. … Your source of supply is lockeddown with an Alaska LNG project. Eventhe Qataris can’t do it,” Sullivan said, not-ing Alaska gas is not part of the hydraulicfracturing debate that could potentiallyshut down much of the shale gas produc-tion in the Lower 48 states.

Alaska gets kudosSullivan also talked about the progress

the State of Alaska has made on gas com-mercialization, including LNG, notingthere were two state-backed projects.

He emphasized the reliability ofAlaska’s gas supply, pointing out thatAlaska is the only state in the U.S. cur-rently exporting LNG.

In the 40-plus years that the KenaiPeninsula facility has been exportingLNG to Asia, mainly Japan, it has nevermissed a shipment, Sullivan told the audi-ences he addressed and the people he metwith.

To his delight, he wasn’t the only offi-cial who praised Alaska’s reliability.

In the Sept. 19 LNG Producers-Consumers Conference, Hiroshi Okuda,governor of Japan Bank for International

Cooperation, and one of the “most promi-nent speakers on the Japanese side, high-lighted Alaska,” Sullivan said.

“In that culture it was a big deal. Mr.Okuda, formerly chairman and CEO ofToyota … first highlighted the Qataris,who were there in force, because after the2011 Fukushima nuclear disaster, Qatarstepped up to help Japan.”

Then Okuda praised the state ofAlaska’s “strong record of reliability inreally pioneering LNG trade,” the com-missioner said. “The head of Tokyo Gaswas not as effusive, but he also acknowl-edged Alaska.”

Later, when Sullivan was introduced,he “acknowledged both their kind wordsand then repeated them.”

What about price?Although LNG pricing was a “hot

topic” at the conference and elsewhere,Sullivan said he refused to engage in thedebate.

Most LNG suppliers want to see theprice they get for LNG continue to be tiedto an oil index versus to lower natural gasprices.

For example, recently Mark Papa, top

executive at EOG Resources, which has a30 percent slice of Kitimat, said that “pro-ject is not going to go anywhere” until itgets “an oil index contract with a Far Eastbuyer for a majority of the off-take,” call-ing the project “kind of a long putt.”

“It was certainly one of the Japanese…goals to start that conversation. … (But)I am not dipping into that debate,”Sullivan said, admitting it was a “prettyraging debate at the conference.”

What he would tell people was thatAlaskans “are working on the most capitalefficient competitive project possible. Thedetails on all these price regimes in differ-ent parts of the world and how they aregoing to come together I did not focus on;I did not answer questions on that topic.”

Sullivan’s dialogue and supportingmaterials concentrated on the competitive-ness of Alaska LNG, emphasizing thestate’s reliability of supply, and pointing tothe Brookings Institution’s 2012 policybrief that discussed the strong competitiveposition of a potential, large-scale AlaskaLNG to Asia project, and WoodMackenzie’s 2011 study for the State ofAlaska that evaluated the economic com-petitiveness of Alaska LNG in comparison

to other projects competing for the samecustomers.

Wood Mackenzie concluded AlaskaLNG would be competitive and could gen-erate between $220 and $419 billion,delivering a cost structure below $10 permillion Btu. Most competing Australianprojects and proposed North AmericanLNG exports, it noted, had yet to securefinal investment decisions and wereexpected to deliver LNG to Asia at a costof $10-$12 per million Btu.

Paving the way for ParnellSullivan’s trip to Japan and South

Korea, which began Sept. 17 and conclud-ed Sept. 21, was partly paving the way forAlaska Gov. Sean Parnell’s visit to thesame counties Sept. 24-Oct. 1.

Whereas the commissioner met mainlywith company and government officials onhis level — “deputy ministers, senior vicepresidents, chief operating officers” — thegovernor would meet with fewer officials,but the “next level up,” Sullivan said. �


2

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News in a Sept. 20 interview.“Our message has been that we were

planning a well in 2014, but recent eventsand challenges experienced by othershave caused us to re-evaluate our decisiontimeframe,” Sunde said. “We are commit-ted to improve our understanding of whatit will take to successfully explore inAlaska and our team will continue itswork in learning how to enhance the reg-ulatory process and work with our indus-try partners.”

Regulatory claritySunde explained that Statoil’s re-evalu-

ation of its Chukchi Sea plans particular-ly stems from uncertainty over the gov-ernment regulatory process. In particular,the outcome of the splitting of theDepartment of the Interior’s oversight ofouter continental shelf oil and gas activi-ties into two agencies — the Bureau ofOcean Energy Management and theBureau of Safety and EnvironmentalEnforcement — has yet to settle, Sundesaid. For example, the Bureau of Safetyand Environmental Enforcement has beenissuing new rules for offshore operationsusing notices to lessees. And improvedcommunication and coordination betweendifferent regulatory agencies would behelpful, Sunde said.

“The main concern is always (regula-tory) clarity and predictability,” he said.

Meantime, Statoil has contracted withconsultants to work on an explorationplan for Chukchi Sea drilling, with com-pletion of the plan anticipated at sometime in 2013.

Statoil entered the Alaska oil scenewhen it purchased leases in the U.S.

Minerals Management Service’s 2008Chukchi Sea lease sale and in 2010Statoil conducted a 3-D seismic programin its 16 leases located about 100 milesnorthwest of the Chukchi Sea coastal vil-lage of Wainwright. From this survey thecompany identified two oil prospects,called Augustine and Amundsen. InitiallyStatoil anticipates focusing its drillingefforts on Amundsen, the larger of theprospects.

Fieldwork resultsIn the open water season of 2011

Statoil conducted shallow hazards sur-veys and geotechnical coring at potentialdrilling sites in its leases — the companyhas now assessed the results of that field-work and has concluded that it can drillsafely, Sunde said. Although yet to makea final decision on the type of drilling rigto use in the Chukchi, the company isconsidering the use of a jack-up rig, aconfiguration in which a drilling platformis held above the sea on legs lowered tothe seafloor. The geotechnical surveyresults show that the seabed is capable ofsupporting a jack-up drilling platform,Sunde said.

Statoil is also partnering in the explo-ration of ConocoPhillips’ Chukchi SeaDevil’s Paw prospect, some distance tothe south of Statoil’s leases.ConocoPhillips has said that it plans todrill at Devil’s Paw in 2014.

Community dialogueSunde said that his company is partic-

ularly anxious to work with North Slopecommunities, to address their concernsabout offshore oil and gas activities.

“An open dialogue with the local com-munities about our plans is very impor-tant to Statoil,” Sunde said. “We are com-

mitted to base our work on understandingthe local environmental and cultural chal-lenges. Through close dialogue, interac-tions, openness and transparency we wishto build trust in Statoil as a company andto listen to and address concerns for theenvironment expressed by local stake-holders. … Over the past 36 months, wehave held open-house informationalmeetings in eight communities —Barrow, Wainwright, Atqasuk, Point Lay,Point Hope, Kivalina, Kotzebue andNome — and have participated in dia-logue sessions with village leadership. Intotal we have held more than 120 meet-ings with Native villages and specialinterest groups.”

Diversity of viewsThere is a wide diversity of views

among North Slope residents when itcomes to the merits or otherwise of off-shore oil development and Statoilreceives both statements of support for itsplans and challenging questions, Sundesaid.

“We wish to understand the concernsthat the population on the North Slope haswith offshore drilling, because it makesus able to respond better,” he said. “And Iappreciate the openness of these conver-sations that we’ve had in the villages.”

Sunde said that the main concernamong North Slope residents is the possi-bility of an offshore oil spill. There is alsoconcern about the environmental distur-bance from sound associated with off-shore seismic surveys, although Statoilhas already completed its Chukchi Seaseismic program.

Environmental monitoringStatoil continues to work with Shell

and ConocoPhillips in a multi-year pro-

gram of Chukchi Sea environmental mon-itoring and research, designed to acquiredata for the assessment and monitoring ofthe environmental impacts of offshoreindustrial activities. This program hasincluded the deployment of subsea soundrecorders for the monitoring of soundsfrom marine mammals; the program hasalso included field research into themarine environment in leased areas.

Sunde said that Statoil, as part of thecompany’s own internal standards andprocedures, will prepare its own environ-mental assessment of its planned ChukchiSea work, in addition to any environmen-tal assessment required under U.S. regula-tions for offshore oil and gas activities.These assessments will address concernsraised during meetings with North Slopecommunities, he said.

Incremental innovationIn the context of the Arctic offshore as

a whole, Statoil sees the Chukchi Sea as aregion where there is proven technologyfor drilling wells, but where incrementalinnovation will be needed to devise safeand effective technologies for field devel-opment and oil production, Sunde said.That is distinct from regions such as theBarents Sea and the Grand Banks off theeast coast of Canada, where explorationhas progressed successfully for manyyears and where there is current field pro-duction using established technologies

On the other hand, an Arctic regionsuch as offshore east Greenland, with rel-atively deep water and significant icechallenges year round, will require inno-vation for both drilling and development,Sunde said. �



STATOIL


SULLIVAN TALKS LNG

Contact Kay Cashman at [email protected]

http://www.TotalSafety.com/

Badami field.Sullivan’s preliminary conclusion is

ExxonMobil is “fit, willing and able toconstruct and operate a pipeline in a man-ner required by present and future publicinterest,” a state public notice said.

Public comment invitedThe State Pipeline Coordinator’s

Office, part of DNR, is taking written pub-lic comment on the proposed lease throughOct. 30.

DNR is holding public hearings in threeNorth Slope villages: Barrow, Oct. 23;Kaktovik, Oct. 24; and Nuiqsut, Oct. 25. Ahearing also is planned in Fairbanks onOct. 29.

The commissioner intends to issue theright-of-way lease provided no majorissues arise from the public comment peri-od.

The commissioner’s analysis and pro-posed decision is available athttp://dnr.alaska.gov/commis/pco.

In leasing land for pipeline rights ofway, state law requires the DNR commis-sioner to make a written finding that theapplicant is “fit, willing and able.” Thecommissioner also must prepare an analy-sis of the application.

In this case, the applicant is PTEPipeline LLC, a newly formed companycreated specifically to build and operatethe Point Thomson Export Pipeline. PTE isa subsidiary of ExxonMobil Pipeline Co.,which operates an extensive network ofpipelines around the United States.

Another state agency also is consider-ing the proposed pipeline.

PTE has applied to the RegulatoryCommission of Alaska for a “certificate ofpublic convenience and necessity.”

The commission has scheduled a publichearing for 1:30 p.m. Oct. 23 inAnchorage.

PTE has asked the commission to makea decision on its application by Nov. 30, so

that construction can begin this winter.

$204 million projectTotal cost to build the Point Thomson

pipeline is estimated at $204 million, thecommissioner’s analysis says. The annualoperating cost is estimated at $26 million.

The design life of the pipeline is 30years, which matches the length of the pro-posed right-of-way lease.

“A 30-year design life does not indicatethat the pipeline and associated structureswill be used up, failure-prone, or requiringreplacement at the end of the lease,” theanalysis says.

The state has high hopes that thepipeline and the development of the PointThomson field will lead to an expansion ofoil and gas activity across the remote east-ern North Slope.

ExxonMobil initially plans to produce a

modest 10,000 barrels a day of petroleumliquids from the Point Thomson field. Butthe common carrier pipeline will have thecapacity to handle a much larger through-put — up to 70,000 barrels per day, whichis “commensurate with full field develop-ment” at Point Thomson, the commission-er’s analysis says.

In building the pipeline, the state is“encouraging the applicant to fill jobs withresidents, to the extent practical and possi-ble.”

The pipeline construction workforce isexpected to peak at 210 people, the analy-sis says.

PTE will lay the pipeline from ice roadsover two upcoming winter constructionseasons.

The pipeline will run roughly parallelto, and just inland from, the Beaufort Seacoast. It will traverse lonely state land, withno communities along the route. The localgovernment, the North Slope Borough,supports the project.

The pipeline, 12 inches in diameter, willconnect the main, or central, well pad atPoint Thomson to the 12-inch, BP-ownedBadami pipeline.

The Point Thomson line will be elevat-ed 7 feet off the ground, mounted on 2,200vertical support members along its 22-milelength. Elevating the line will allow cari-bou as well as snowmachines to passunderneath.

The pipeline will feature a “non-shinyexterior metal insulation wrap to minimizevisual impacts,” the commissioner’s analy-sis says.

Part of the line also will feature a thick-er steel wall to resist possible stray bulletsfrom subsistence caribou hunters along the

coast.The proposed lease stipulates that

pipeline employees and contractors willnot be allowed to hunt, fish or trap withinthe right of way. However, PTE must givethe general public access.

Awaiting federal permitBefore construction can begin on the

Point Thomson development, ExxonMobilstill needs a U.S. Army Corps of Engineerspermit to fill wetlands.

The Corps has been considering thecompany’s application for the permit sincelate 2009, and had not yet made a decisionas Petroleum News went to press.

ExxonMobil has promised the state itwill begin production from Point Thomsonby the winter of 2015-16. But to achievethat goal, the company says it needs thepermit in time for construction to start thiswinter.

This initial Point Thomson develop-ment is a gas cycling project. Natural gasfrom wells will go to a central processingplant, which will separate out liquid hydro-carbons known as condensate. Dry gas willbe injected back into the reservoir, with thecondensate going into the Badami-boundpipeline. From there, the Point Thomsonproduction will flow into the trans-Alaskaoil pipeline.

In August, the Army Corps said it wasaiming to render a “record of decision” bySept. 21 on the wetlands permit. But theCorps cautioned that date wasn’t firm, say-ing the record of decision and permit “maynot be complete until as late as Nov. 21.” �



POINT THOMSON

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priate environmental training for itspeople, deployed licensed marinemammal observers with listeningequipment, and conducted reconnais-sance flights before conducting eachseismic shoot, Hendrix said. The recon-naissance flights were not requiredunder the terms of Apache’s permits, hesaid.

Wildlife RefugeIn the northern part of the Kenai

Peninsula, Apache wants to extend itsseismic coverage east across someCook Inlet Region Inc. land, as part of

an exploration agreement with CIRI,signed in early August. But that land onthe peninsula is inside the perimeter ofthe Kenai National Wildlife Refuge —the U.S. Fish and Wildlife Service, theadministrator of the refuge, requiresApache to obtain a special use permitbefore the seismic survey can start,Parker said. That permit is contingenton the completion of an environmentalassessment which Apache could notbegin until after signing the CIRIagreement; completing the assessmentand obtaining the permit will likelytake until late April, Parker explained.

—ALAN BAILEY


APACHE


http://www.baldmountainair.com/

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