page Enbridge sends mixed messages on
7 Alaska natural gas pipeline
Vol. 12, No. 31 • www.PetroleumNews.com Published weekly by Petroleum Newspapers of Alaska Week of August 5, 2007 • $1.50
● EXPLORATION & PRODUCTION
Tesoro stations tug at Nikiski
COURTESY TESORO ALASKA
Two steps closer
Shell, whalers sign agreement, Beaufort Sea ACMP determination final
By ALAN BAILEY new conditions.
Petroleum News Shell plans to drill three wells in its
Sivulliq prospect on the western side of
hell can check two more items off Camden Bay during the 2007 open water
its to-do list for its planned 2007 season and has commissioned two
Beaufort Sea drilling program. On drilling vessels, the Kulluk and the
July 24 the company finally signed Frontier Discoverer, plus a fleet of sup-
a conflict avoidance agreement with the port vessels for the drilling program.
Alaska Eskimo Whaling Commission for But Native communities on the North
Pictured above is Crowley Marine’s tractor tug Valor, the twin to the company’s 2007 open water explo- On July 27 Alaska Slope are concerned about the potential
the Vigilant that Tesoro will be stationing year-round at Nikiski.
See story on page 5.
ration program. And on July 27 the com- DNR Commissioner for the industrial activities to disrupt the
missioner of the Alaska Department of Tom Irwin upheld
the ACMP consisten-
annual subsistence hunt for marine mam-
Natural Resources, Tom Irwin, upheld cy determination, mals, in particular bowhead whales. The
Tough times for Mackenzie line the Office of Project Management & subject to some
hunters think that industrial noise would
Permitting’s Alaska Coastal Management deflect the whales from their normal
TransCanada is eager to build its interest in the Mackenzie Plan consistency determination, subject to some
Gas Project, but for now is preoccupied with the spectrum of see CLOSER page 19
complex issues that have to be overcome for the project to go
ahead, Chief Executive Officer Hal Kvisle said. ● NATURAL GAS
“In any pipeline project we’re involved in, we’d rather
have a larger interest than a smaller one,” he told analysts
But the more pressing matter for now is the focus on
FERC can’t force expansion
“building a major basin-opening pipeline that will benefit Court upholds rules regulating Alaska gas line, while quieting owners’ fears
Canada and the core producers and set the stage for a lot of
exploration and production activity long term,” Kvisle said. By ROSE RAGSDALE
“That’s a very complex thing.”
In a 12-page opinion written by Chief
For Petroleum News
He said it is challenging for the core producers (Imperial Judge Douglas H. Ginsburg on behalf of a
A three-judge panel in the consolidated case,
Oil, Shell Canada, ConocoPhillips Canada and ExxonMobil federal appeals court rejected an effort July
Canada) to press ahead with the project when many other 27 by three major gas owners in Alaska to the appeals court found that the gas
stakeholders stand to benefit from the undertaking. overturn two rules governing access to a owners misinterpreted the two rules in
potential multibillion-dollar pipeline that
see MAC LINE page 17 question.
would transport natural gas from the North Slope
to the Midwest.
Oil sands grind But the import of the decision by the U.S. Court Alaska has struggled for decades to develop its
of Appeals for the District of Columbia Circuit abundant natural gas resources in the Arctic —
down doubter BP; may actually be good news for BP, ConocoPhillips estimated to exceed 100 trillion cubic feet of
Alaska exploration and ExxonMobil. The three companies, which pro- recoverable reserves and nearly 40 tcf in recover-
able known reserves — by trying to strike a deal
buzz baseless, says duce most of Alaska’s oil and lease a large chunk
with either gas owners or with independent
of the North Slope acreage with known gas
BP; Palin calls PPT reserves, have been insistent that they own major- pipeline companies for construction of the project.
special session ity interest in a gas pipeline from the North Slope. see FERC page 15
BP LIKES SPREADING THE MES-
SAGE that its initials stand for Beyond ● GOVERNMENT
How about Behind our Peers?
Well, that was the case until this year when the global
supermajor decided to clamber aboard the oil sands wagon.
Push to protect planet
In its highly regarded yearly Statistical Review of World North American free trade partners sign alternative energy agreement
Energy, BP credited the Canadian oil sands with holding
By GARY PARK bolster the continent’s energy security
see INSIDER page 17 while protecting the environment.
For Petroleum News
U.S. Energy Secretary Samuel
he United States, Canada and Bodman said the agreement reaffirms the
B R E A K I N G N E W S Mexico — the big energy user in commitment to build a strong, unified
North America and its two leading energy market among the three countries.
4 Canada units 'abysmal' for drillers: Utilization of coun- suppliers — have moved another
step closer to lowering trade barriers to
“It represents another step ? we
believe a major step ? toward enhancing
try’s 857 rigs was 42% in first half of year compared to 66% in 2006 cleaner, alternative energy development. global energy security and environmental
In a five-year pact signed July 23 in protection,” he said.
5 State of Alaska issues Cook Inlet leases: Wait is over Victoria, British Columbia, the three part- Canada’s Natural Resources Minister Bodman and Lunn
(and take so long again) for bidders at May 2006 areawide sale ners in the North American Free Trade Gary Lunn said the three governments rejected
Agreement pledged cooperation to pro- understand the “importance of develop- ConocoPhillips CEO
mote more energy-efficient technology, Jim Mulva's sugges-
7 Closing set on Forest’s Alaska assets: Amendment to
including joint research in areas such as
ing cleaner energy (along with) more effi-
cient ways to produce it and use our con-
tion to consider
sale with Pacific Energy Resources extends closing to Aug. 24 nuclear energy and renewable fuels to such as $60 per bar-
see PROTECT page 19 rel for oil.
2 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007
contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska
ON THE COVER FINANCE & ECONOMY
Two steps closer 7 New Aug. 24 date set for closing Forest Alaska sale
Shell, whalers sign agreement, Beaufort Sea
ACMP determination final
FERC can’t force expansion
Court upholds rules regulating Alaska gas line,
while quieting owners’ fears
Push to protect planet
North American free trade partners sign 9 Gravel use presents technical challenges
alternative energy agreement
Oil industry, regulators join forces to meet challenges
Tough times for Mackenzie gas pipeline on Alaska’s North Slope, convert abandoned
mines into fish, waterfowl habitat
OIL PATCH INSIDER
1 Oil sands grind down doubter BP
6 Public comments on NPDES due Aug. 6
17 Business as usual for BP in Alaska, exploration
rumors just that — rumors 12 Industry responds to proposed NPR-A regs
17 Palin calls special session of Alaska Legislature LAND & LEASING
to review new Petroleum Profits Tax
5 Alaska agency issues Cook Inlet leases
ALTERNATIVE ENERGY 14 State approves West Sak PA expansion
12 Denali funds Yukon River hydropower 15 New data issued for North Slope, Beaufort
Sea areawide lease sales
EXPLORATION & PRODUCTION
4 Canada units ‘abysmal’ for drillers NATURAL GAS
7 Enbridge sends mixed messages on gas line
Utilization country’s 857 rigs was 42% in the first half
of the year compared to 66% in same period 8 Woodside OKs Pluto LNG, setting budget
in 2006, lowest since 1999 Project will tap offshore field near northwest Australia
13 Triple play in Canada’s oil sands to deliver energy to Japanese utilities,
perhaps as early as 2010
Royal Dutch Shell launches 400,000 bpd upgrader
plans; Marathon bids to acquire Western Oil PIPELINES & DOWNSTREAM
Sands and enter upstream 5 Tesoro stations year-round tug at Nikiski
14 Gas shut-in to conserve bitumen 6 Lunn prods Bodman on pipeline approvals
20 Begging to differ on oil sands Canadian cabinet minister presses U.S. counterpart
to speed up regulatory process; NEB warns
pipeline rationing could hit this fall
PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 3
Alaska - Mackenzie Rig Report
Rig Owner/Rig Type Rig No. Rig Location/Activity Operator or Status The Alaska - Mackenzie Rig Report as of August 2, 2007.
Active drilling companies only listed.
Alaska Rig Status TD = rigs equipped with top drive units WO = workover operations
CT = coiled tubing operation SCR = electric rig
North Slope - Onshore
Akita Drilling Ltd.
This rig report was prepared by Alan Bailey
Dreco 1250 UE 63 (SCR/TD) Racked in Deadhorse Anadarko
Dreco 1250 UE 14 (SCR/TD) Moving to workover Prudhoe Bay well BP
Sky Top Brewster NE-12 15 (SCR/TD) Kuparuk 1J-162 ConocoPhillips
Dreco 1000 UE 16 (SCR/TD) Workover Prudhoe 7-08A BP
Dreco D2000 UEBD 19 (SCR/TD) Alpine CD4-322 ConocoPhillips
OIME 2000 141 (SCR/TD) West Sak 1J-122 ConocoPhillips
TSM 7000 Arctic Fox #1 Stacked in Yard Pioneer Natural Resources
Arctic Wolf #2 Racked at Cape Simpson FEX
Kuukpik 5 Stacked in Deadhorse Available till Available
Nabors Alaska Drilling
Trans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay Available
Dreco 1000 UE 2-ES Prudhoe Bay F-01A BP
Mid-Continental U36A 3-S Milne Point E-18 BP
Oilwell 700 E 4-ES (SCR) Prudhoe Bay DS 01-15A BP
Dreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay DS 12-05A BP
Dreco 1000 UE 9-ES (SCR/TD) Polaris S-125 BP
Oilwell 2000 Hercules 14-E (SCR) Stacked Available
Oilwell 2000 Hercules 16-E (SCR/TD) Stacked Available
Oilwell 2000 17-E (SCR/TD) Stacked, Point McIntyre Available
Emsco Electro-hoist -2 18-E (SCR) Stacked, Deadhorse Available
OIME 1000 19-E (SCR) Stacked, Deadhorse Available
Emsco Electro-hoist Varco TDS3 22-E (SCR/TD) Stacked, Milne Point Available
Emsco Electro-hoist 28-E (SCR) Stacked, Deadhorse Available
OIME 2000 245-E Oliktok Point OPi2 Anadarko
Emsco Electro-hoist Canrig 1050E 27-E (SCR-TD) Stacked
Nordic Calista Services
Superior 700 UE 1 (SCR/CTD) Prudhoe Bay well G-25B BP
Superior 700 UE 2 (SCR/CTD) Kuparuk well 05-28B BP
Ideco 900 3 (SCR/TD) Kuparuk well 2N-327 ConocoPhillips
North Slope - Offshore
Nabors Alaska Drilling
Oilwell 2000 33-E Stacked
Cook Inlet Basin – Onshore
Aurora Well Service
Franks 300 Srs. Explorer III AWS 1 Stacked at Nikiski Available
Marathon Oil Co. (Inlet Drilling Alaska labor contractor)
Taylor Glacier 1 Grassim Oskolkoff No. 6 Marathon
Nabors Alaska Drilling
National 110 UE 160 (SCR) Stacked, Kenai Available
Continental Emsco E3000 273 Stacked, Kenai Available
Franks 26 Stacked Available
IDECO 2100 E 429E (SCR) Stacked, removed from Osprey platform Available
Rigmaster 850 129 Swanson River SRU 41-05 Chevron
AC Electric 68 (SCR/TD) Being moved from Texas Pioneer Natural Resources
for drilling at Cosmopolitan
Cook Inlet Basin – Offshore
Unocal (Nabors Alaska Drilling labor contractor)
National 1320 A Platform A no drilling or workovers at present XTO
National 110 C (TD) Idle XTO
Baker Hughes North America rotary rig counts*
July 27 July 20 Year Ago
Cudd Pressure Control US 1,775 1,790 1,714
Canada 371 377 547
Cudd 340k Jack Unit Workover Ahtna #1-19 Rutter and Wilbanks
Gulf 78 77 91
Mackenzie Rig Status Highest/Lowest
US/Highest 4530 December 1981
Canadian Beaufort Sea US/Lowest 488 April 1999
Canada/Highest 558 January 2000
Seatankers (AKITA Equtak labor contract) Canada/Lowest 29 April 1992
SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Devon ARL Corp. *Issued by Baker Hughes since 1944
Dreco 1250 UE 62 (SCR/TD) Rig Racked in Inuvik, NT Schlumberger
Modified National 370 64 (TD) Racked in Inuvik, NT Available The Alaska - Mackenzie Rig Report
is sponsored by:
4 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007
● E X P L O R A T I O N & P R O D U C T I O N
Canada units ‘abysmal’ for drillers
Utilization country’s 857 rigs was 42% in the first half of the year compared to 66% in same period in 2006, lowest since 1999
By GARY PARK its rigs at work in Canada fell 51 percent Precision Drilling, which runs about
For Petroleum News in the quarter from a year earlier, warning one-third of all rigs in Canada, chopped The level of unhappiness with
that a “significant deterioration” of activ- nearly 25 percent off its 2007 drilling Western Canada was reflected in
N abors, Baker Hughes and Precision
Drilling Trust are among those
pointing fingers at Canada.
The three oilfield service giants
ity and profitability would take a chunk
out of its profits.
Nabors reported an US$8 million
operating loss in its Canadian unit and
It said poor weather and uncertainty
over the economics of gas drilling in
Western Canada have forced some of its
remarks to analysts by Petro-
Canada CEO Ron Brenneman, who
said his company will shift its focus
to the U.S. Rockies, where current
spread more gloom over an already floun- Chief Executive Officer Gene Isenberg customers — which include EnCana,
dering upstream sector by posting dismal ducked efforts to have him predict when a Canadian Natural Resources and production of 80 million cubic feet
results for the second quarter in Western rebound might occur. Talisman Energy — to restrict their per day is expected to reach 100
Canada and offering no hope of an early While forecasting 50 percent overseas spending. million cubic feet per day by the
recovery. growth for Nabors, he described the EnCana Chief Executive Officer end of 2007, although pipeline
Baker Hughes reported the number of Canadian market as “abysmal.” Randy Eresman told analysts July 25 that availability could hamper that.
the recent slide in gas prices, after a short-
term recovery, “suggests we may be in for
with the Canadian Association of Oilwell
some bumpy prices near-term, but overall
Drilling Contractors targeting 18,961
we remain bullish on natural gas.”
wells and FirstEnergy Capital shooting for
Precision’s executive Chairman Hank
Swartout told analysts he is “bearish”
PSAC based its revised forecast on
about the remainder of 2007 and early
average 2007 prices of US$65 per barrel
2008, but is confident that the trust will
WTI and C$6.75 (US$6.41) per thousand
handle the turbulence.
cubic feet of gas at the AECO hub.
“We’ve done it before, we’ll do it
PSAC President Roger Soucy said
again,” he said, but warned it will take six
many areas of the Western Canada
straight months of strong natural gas
Sedimentary basin need gas prices of C$8-
prices to trigger a recovery and he does-
$10 to attract new drilling.
n’t see that happening until 2008.
“The further we go into the year the
“At some point it has to turn,”
less likely any turnaround will occur,” he
Swartout said. “But there will be a lot of
pain to get to that point.”
Utilization of Canada’s 857 rigs was 42
Petroleum Services Association percent in the first half, the lowest since
1999 and dragging well behind last year’s
does course correction 66 percent. By some estimates, the rate
With gas producers sucking wind these slumped to 18 percent in the second quar-
days, the Petroleum Services Association ter.
of Canada has done a sharp course correc- The level of unhappiness with Western
tion. Canada was reflected in remarks to ana-
It now forecasts 17,650 well comple- lysts by Ron Brenneman, chief executive
tions across Canada this year, 20 percent officer of Petro-Canada. Despite the
below its original forecast for the year and a impact of low natural gas prices on asset
www.PetroleumNews.com 24 percent decrease from last year’s 23,306. values, his company did not regard
The biggest losers among the provinces Western Canada as an expansion area.
Kay Cashman PUBLISHER & EXECUTIVE EDITOR ADDRESS will be British Columbia down a stunning Instead, Petro-Canada will shift its
P.O. Box 231651 42 percent from last year at 795 wells, focus to the U.S. Rockies, where current
Mary Mack CHIEF FINANCIAL OFFICER Anchorage, AK 99523-1651
Manitoba off 17 percent at 440 wells and production of 80 million cubic feet per day
Kristen Nelson EDITOR-IN-CHIEF EDITORIAL
Alberta in a 17 percent plunge to 12,815 is expected to reach 100 million cubic feet
Anchorage telephone wells, with Saskatchewan expected to per day by the end of 2007, although
Susan Crane ADVERTISING DIRECTOR
907.522.9469 record a 7 percent decline to 3,520 wells. pipeline availability could hamper that,
Amy Spittler ASSOCIATE PUBLISHER Editorial Email Other forecasters are less pessimistic, Brenneman said. ●
Heather Yates OFFICE MGR./CIRC. BOOKKEEPER email@example.com
Shane Lasley CIRCULATION DIRECTOR
Steven Merritt PRODUCTION DIRECTOR
BOOKKEEPING & CIRCULATION
Tim Kikta COPY EDITOR 907.522.9469
Gary Park CONTRIBUTING WRITER (CANADA) firstname.lastname@example.org
Ray Tyson CONTRIBUTING WRITER
Alan Bailey STAFF WRITER 907.770.5592
John Lasley STAFF WRITER email@example.com
Allen Baker CONTRIBUTING WRITER
Rose Ragsdale CONTRIBUTING WRITER 907.644.4444
Sarah Hurst CONTRIBUTING WRITER FAX FOR ALL DEPARTMENTS
Paula Easley DIRECTORY PROFILES/SPOTLIGHTS
Petroleum News and its supple-
Judy Patrick Photography CONTRACT PHOTOGRAPHER ment, Petroleum Directory, are
owned by Petroleum Newspapers
Mapmakers Alaska CARTOGRAPHY of Alaska LLC. The newspaper is
published weekly. Several of the
Forrest Crane CONTRACT PHOTOGRAPHER individuals listed above work for
independent companies that con-
Tom Kearney ADVERTISING DESIGN MANAGER tract services to Petroleum
Newspapers of Alaska LLC or are
Dee Cashman CIRCULATION REPRESENTATIVE freelance writers.
OWNER: Petroleum Newspapers of Alaska LLC (PNA)
Petroleum News (ISSN 1544-3612) • Vol. 12, No. 31 • Week of August 5, 2007
Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518
(Please mail ALL correspondence to:
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PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 5
● P I P E L I N E S & D O W N S T R E A M
Tesoro stations year-round tug at Nikiski
By ALAN BAILEY other ports around the Cook Inlet.
COURTESY TESORO ALASKA
Petroleum News Tesoro has now decided to station a tug at Nikiski
year round and is working with Crowley Marine to mod-
esoro Alaska announced July 30 that it will position ify a new 6,700-horsepower, Z-drive tractor tug, the
year round a tractor tug at the Nikiski dock on the Vigilante, for the purpose. Modifications include ice
west side of Alaska’s Cook Inlet. The dock serves strengthening.
tankers bringing crude oil to Tesoro’s Nikiski oil Operated by Crowley Marine, the Vigilante will go
refinery, as well as tankers that ship out refinery prod- into service at Nikiski in early November, with the
ucts. Protector remaining on station until then. The new tug
will primarily support Tesoro’s operations but will be
Tesoro has now decided to station a tug at available for other uses as scheduling allows, Tesoro
Nikiski year round and is working with said.
Crowley Marine to modify a new 6,700- “We have effectively utilized the dedicated tractor tug
horsepower, Z-drive tractor tug, the Vigilante, and are pleased to continue this level of support to our
Crowley Marine’s tractor tug Valor, the twin to the Vigilant
for the purpose. Modifications include ice that Tesoro will be stationing at Nikiski
Alaska operations,” said Steve Hansen, Kenai refinery
tanker was refloated a day later without the significant
spillage of any oil products or serious damage to the ves- Praise from RCAC
“We are making this investment for Tesoro Alaska sel, the rescue depended on the use of tugs from Seldovia Cook Inlet Regional Citizens Advisory Council, a
because positioning a tractor tug at Nikiski on a year- and Anchorage, both several hours sailing time from the watchdog group for shipping and the oil industry in the
round basis is an additional enhancement to our safety site of the grounding. Cook Inlet, praised Tesoro’s action.
and environmental programs,” said Captain Tim That incident heightened concerns over the need for a “Tesoro isn’t the only company that will benefit from
Plummer, president of Tesoro Maritime. “It is a major tug to be positioned at the Nikiski dock. having a tug in the area and they should be commended
new commitment to the community, our employees, the for implementing this navigational safeguard that is
state, Coast Guard and marine vessels and barges, of the Winter support above and beyond regulatory compliance,” said Cook
emphasis we place on safety and the environment.” In January 2007 Tesoro contracted the Protector, a Inlet RCAC Executive Director Michael Munger.
In February 2006 the tanker Seabulk Pride, under 5,500-horsepower tractor tug, operated by Crowley “Citizens have wanted this kind of protection for a long
charter to Tesoro, ran aground on mud flats north of Marine, for emergency support at Nikiski during the time and we’ve been diligent bringing about this change
Nikiski after wind and tide-driven ice in the Cook Inlet winter. In addition to being stationed at Nikiski where it for them. Tugs play a role everywhere that oil tankers
had plucked the tanker from the dock at Nikiski, break- could provide immediate assistance for dock operations, port in the U.S. and it’s time Cook Inlet saw similar safe-
ing all 16 mooring lines in the process. Although the this tug was much more powerful than tugs stationed at guards.” ●
● L A N D & L E A S I N G
Alaska agency issues Cook Inlet leases
By ALAN BAILEY able for lease in an areawide sale, it Experienced staff shortages
Petroleum News doesn’t verify the land title and com-
Shortages of experienced staff at the division have
plete the legal descriptions of the
slowed the processing of the title work for tracts bid on in
he long wait is over for people who made successful leased land until after bids have been
bids at the State of Alaska’s May 2006 areawide lease the areawide sales, Banks said. And the fact that the last
accepted at the lease sale. In some
sale. Alaska’s Division of Oil and Gas mailed the leas- areawide sale attracted a high number of leases in areas
cases, tracts that have been bid may
es on July 30 for signature by the bidders, Kathy with complex land ownership issues compounded the
include some land parcels that have
Means, natural resource manager for DO&G lease sales problems, Means said.
already been leased, Banks said.
and lease administration unit, told Petroleum News on July Banks said that, although it will always take some time
And that land title and survey
31. to process leases after an areawide sale, the recent delays
work takes a substantial amount of … although it will
Denise Stone, exploration adviser for Benchmark Oil always take some are unacceptable.
“It should not have to be 12 months,” he said.
and Gas, one of the lease sale bidders, told Petroleum In a traditional lease sale, as dis- time to process leas-
es after an areawide
News July 25 that Benchmark’s Cook Inlet exploration And, in addition to dealing with the issues of staff inex-
tinct from an areawide sale, the divi- sale, the recent
was in something of a holding pattern while the company perience, Banks think that there is scope for streamlining
sion performs all the tract survey delays are unaccept-
the lease issue procedures.
waited for the leases (see “Benchmark gathering data; and title work prior to the sale, for able. “It be 12 not
waiting on leases” in the July 29 edition of Petroleum “We’re catching up. … I think we need to be more cre-
the tracts that the division has decid- months.” —Kevin
News). ative about our procedures, to see just where are those bot-
ed to offer. It can then issue leases to Banks, acting direc-
tlenecks that we can widen,” Banks said.
So how come it has taken well over a year to issue the successful bidders within weeks of tor, Division of Oil
leases? However, the division does have to face the fact that
the sale. But the problem with that
many of its most experienced staff are approaching retire-
approach is that companies can only bid on those tracts that
Title work after the sale the division offers at the sale and the division has to per-
ment age — 30 percent of the staff is reaching an age
where people can decide whether to leave, Banks said. The
Kevin Banks, acting director of DO&G, told Petroleum form the survey and title work on all of the tracts offered,
division needs to plan for that issue, he said. ●
News July 31 that because the division offers all land avail- regardless of whether anyone ultimately leases the tracts.
6 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007
● P I P E L I N E S & D O W N S T R E A M
Lunn prods Bodman on pipeline approvals
Canadian cabinet minister presses U.S. counterpart to speed up regulatory process; NEB warns pipeline rationing could hit this fall
By GARY PARK es until 2012.
But it said now is the time to The trilateral meeting in Victoria, British
For Petroleum News
start working on a new round of Columbia, was a chance for Lunn to tweak
anadian Natural Resources Minister Gary Lunn expansion, given the lead time Bodman in advance of any cross-border
decided it was time to put some pressure on the needed for regulatory approvals regulatory action relating to natural gas
United States. and construction. pipelines from the North Slope and Canada’s
At a summit of the top energy officials from the The trilateral meeting in
United States, Canada and Mexico on July 23, Lunn took
Victoria, British Columbia, was a
the chance to buttonhole U.S. Energy Secretary Samuel chance for Lunn to tweak Bodman
“We’re open for business; we want to attract investment
Bodman over what he perceived as Washington’s foot- in advance of any cross-border reg- “We are having a
from all corners of the world.”
dragging on approvals for new oil sands pipelines from ulatory action relating to natural tough time getting
Alberta to U.S. markets. gas pipelines from the North Slope permits.” Mulva cited regulatory roadblocks
His concern was reinforced July 27 when the National and Canada’s Mackenzie Delta. Chief Executive
Energy Board said it may have to start rationing space on He served notice of his unhappi- Officer James Mulva Lunn found an ally in ConocoPhillips Chief Executive
export pipelines this fall because of galloping oil sands ness prior to the Victoria summit by Officer James Mulva who said in June that his compa-
production. telling the Globe and Mail he would seek speedier regu- ny’s hopes of modifying its refineries to handle heavier
“It is likely that export crude oil pipelines out of latory review of TransCanada and Enbridge pipelines crudes from Canada have encountered regulatory road-
Western Canada may experience periods of apportion- designed to add 1 million barrels per day of new export blocks.
ment by the fourth quarter 2007 and this may continue volumes by 2010. “We are having a tough time getting permits,” he said.
for the next 18 months,” the federal regulator said. “We need to look at the regulatory approval process The Canadian Association of Petroleum Producers
Acting board Chairman Gaetan Caron was emphatic to make sure it is done as quickly and efficiently as pos- and the Canadian Energy Pipeline Association have done
that “capacity constraints on oil pipelines in Canada are sible,” Lunn said. their own leaning on Washington over the last five years
coming.” Without getting into the specifics, he said Canada, the to make sure Washington has sufficient staff and funding
David MacInnis, president of the Canadian Energy leading external supplier of crude to the U.S. since 2004 to handle its expanded regulatory role.
Pipeline Association, said that unless new pipelines are and poised to rapidly expand that share of the market, Speaking at a news conference, Bodman assured
built by 2009 some production may be shut-in. “wants to ensure there is greater access” to southern cus- Lunn that the U.S. government takes his concerns seri-
Producers already facing apportionment He said the U.S. industry is just as eager to free up the But Bodman also quietly pointed out that the primary
logjam at the U.S. federal, state and local levels and task of evaluating and permitting pipelines from Canada
He said producers are already facing apportionment at
streamline approvals to get additional crude flowing at a rests with the State Department, although his own depart-
times on some lines and those limits will become more
time when the U.S. is anxious to lower its reliance on the ment is working with State to ensure the regulatory
Middle East. process functions “efficiently and effectively.”
If producers are not able to move all of their volumes
Earlier in July, Lunn said Canada was taking its own “I’m of the view that things seem to be on track,”
on an ongoing basis there could be an impact on prices,
steps to build investor confidence by facilitating Bodman said. “As we stand here, I don’t think we have a
approvals for projects adding to the C$100 billion worth major issue,” he said, in a gentle rebuke directed at Lunn.
The board report was at odds with a study released in
of energy products it currently ships to the U.S. each However, Lunn said he and Bodman are committed to
June by the Canadian Association of Petroleum
year. working together to create efficiencies within the regula-
Producers, which said there is enough pipeline capacity
“Our goal is to cut approval time in half,” he said. tory system and attracting the investment needed for
in place or being built to handle projected output increas-
pipeline infrastructure. ●
Public comments on NPDES due Aug. 6
The Resource Development Council of Alaska sent out notices in late July, remind-
ing members that comments on development of Clean Water Act national pollutant
discharge elimination system permits are due Aug. 6. The U.S. Environmental
Protection Agency is seeking information from the general public as it considers how
to develop NPDES permits incidental to the normal operation of vessels.
RDC said there are an estimated 143,000 commercial vessels and more than 13
million privately registered recreational boats that could be affected. “The time and
expense incurred by these vessel operators would be significant, with little or no ben-
efit to the environment,” RDC said.
These vessels have been exempt from the Clean Water Act, but due to a U.S.
District Court ruling, EPA must now require a discharge permit for all U.S. waters
beginning Sept. 30, 2008. EPA is appealing the ruling.
Comments are due to EPAAug. 6. RDC said background information, information
on where to submit comments and links to additional information are available on its
Web site: www.akrdc.org/alerts/2007/epavesseldischarge.html.
PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 7
● N A T U R A L G A S
Enbridge sends mixed messages on gas line
By GARY PARK & KAY CASHMAN But Galvin wasn’t surprised by Daniel’s News). build the main gas pipeline along the
For Petroleum News remarks. “AGIA is a competitive process, so Enbridge is also seen as the leading con- Mackenzie Valley.
we can expect, and in fact we are seeing, a tender to build and operate a natural gas liq- But Daniel said the Mackenzie Gas
nbridge has told Alaska Gov. Sarah lot of misdirection and misinformation float- uids pipeline as part of the Mackenzie Gas Project, like the Alaska project, is not “mov-
Palin and the state that it won’t be part ed around,” he said. “We probably won’t Project. That line would extend from the ing at the pace we would like to see,” given
of any process to build an Alaska gas know until the application deadline what the Mackenzie Delta to Norman Wells in the the need by consumers to see the gas come
pipeline that does not have backing of parties true intentions may be.” Northwest Territories, where it would tie in on stream, because so little new gas has been
the North Slope resource owners, Chief Daniel said Enbridge officials “continue with an existing crude pipeline to northern delivered to North American markets “in
Executive Officer Pat Daniel said in a con- to advise the governor and the state that Alberta. TransCanada is the front-runner to some time.” ●
ference with analysts unless they can get a
Aug. 1. He said the consortium of pro-
process under the ducers together to file
Alaska Gasline under the AGIA we
Inducement Act, won’t be a participant
AGIA, “won’t work in the process.”
effectively” unless it He said his infor-
has the support of BP, mation is that to date
ConocoPhillips and there is “not a lot of
ExxonMobil. active interest for try-
Daniel’s message PAT DANIEL PAT GALVIN ing to mount a project
“is consistent” with without producers’
Enbridge’s public message throughout the support.”
AGIA process, Alaska Commissioner of the Prior to introduction of AGIA, Enbridge
Department of Revenue Pat Galvin told had lobbied intensively to take a role in an
Petroleum News Aug. 2. Alaska pipeline, challenging the claims by
But Galvin found the timing of Daniel’s rival TransCanada that it had exclusive
statements “curious … because we are with rights to build any section of the line cross-
the governor in Juneau today to participate ing Canadian territory.
in a meeting requested by Enbridge. We Enbridge officials told the Alaska
have been told by representatives of Legislature during hearings earlier this year
Enbridge that they want to express their that the company would not participate
excitement for the project,” he said in an e- without the producers (see “Enbridge says
mail to Petroleum News. gas a must” in March 25 issue of Petroleum
FINANCE & ECONOMY
New date set for closing Forest Alaska sale
Forest Oil Corp. said Aug. 1 that an amendment to its agreement to sell its Alaska
assets to Pacific Energy Resources Ltd. has extended the closing date to Aug. 24. When
the sale was announced at the end of May, it was expected to close at the end of June.
Asked about the delay in mid-July, Pacific Energy told Petroleum News that it was
still negotiating “detailed terms” with Forest. The sale includes Forest’s wholly owned
subsidiary, Forest Alaska Operating, including shares in nine Cook Inlet basin fields, a
40 percent interest in Cook Inlet Pipeline Co., and almost 1 million exploration acres
in the Cook Inlet and Susitna basins of Southcentral Alaska.
Under the terms of the amendment Forest will receive cash of $268 million to repay
the full balance of the Forest Alaska Operating term loans; cash of $132 million to be
paid to Forest; 10 million shares of Pacific common stock; and a $60.75 million zero-
coupon senior subordinated note from Pacific due 2014.
In addition to extending the closing date to Aug. 24, Forest said the amendment also
provides for a deposit of 5 million shares of Pacific common stock in addition to the
$5.2 million cash already received and “substantially reduces the circumstances under
which the closing would not occur.”
8 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007
● N A T U R A L G A S
Woodside OKs Pluto LNG, setting $10.5B budget
Project will tap offshore field near northwest Australia to deliver energy to Japanese utilities, perhaps as early as 2010
By ALLEN BAKER most strained, and probably most lucra- 5 tcf reserve base
tive. Most of the LNG from Pluto
For Petroleum News Pluto and Xena are now expected to
The supply situation just got even initially will go to two Japanese
yield 5 trillion cubic feet of gas, up from
oodside Petroleum Ltd. of tighter, at least in the short term, with the utilities, each with a 5 percent
Australia has approved a plan to an earlier estimate of 4.5 tcf. That will pro-
closure of the world’s largest nuclear equity stake in the project. Tokyo
spend US$10.5 billion to tap its vide about 20 years of production to the
power plant, damaged by the July 16 Gas and Kansai Electric will take
Pluto offshore gas field and pro- plant, which is expected to send out 4.3
earthquake in northwest Japan. Tokyo
duce LNG for export, mostly to Japanese
up to 3.75 tonnes annually for 15 million tonnes annually from the initial
Electric Power Co. Inc. plans to shop for
utilities. The go-ahead was announced an additional 1 million tonnes of LNG years, about 85 percent of the first train. Woodside wants to add more LNG
July 27. train’s production. trains at the site, and possibly a domestic
from now through next March, and also
It’s a hefty chunk of money, and dou- gas hub, and Voelte says he’ll open its
double its oil purchases in that period.
ble the company’s low estimate suggested doors to other producers who want to mar-
participation from two Japanese utilities,
just a few months ago. But capital costs Work already under way ket their gas through it.
but still is retaining 90 percent of the total
have been rising quickly in the resource The complex could take gas from
Woodside started site preparations for project, which already has cost more than
extraction sector, particularly for the kind Woodside’s own Browse basin or from
the LNG plant at the beginning of this US$700 million.
of specialty steels and other equipment other sources in the gas-prone region.
year, and is proceeding based on a pre- Pluto and a smaller satellite, Xena, are
needed for the big LNG cooling units. Woodside just added to its exploration
liminary approval earlier in July from off the northwest coast of Australia, about
When Pluto was discovered in 2005, acreage in the area with a major permit
Australia’s Environmental Protection 120 miles from Karratha. Pluto will be
Woodside’s leader, Don Voelte, set an obtained in late July in partnership with
Authority. The project, near the big developed initially with five big-bore
ambitious timetable, and so far he’s stick- Hess Corp. The permit calls for explo-
Woodside-operated North West Shelf subsea wells tied to a platform in about
ing to it. The plan envisions first ship- ration spending of more than $170 million.
LNG plant, still needs final environmen- 275 feet of water. A 36-inch pipeline will
ments in late 2010, just as supply-demand The big elephant in the neighborhood is
tal approval and other permits. connect that platform to the LNG plant on
balance for world LNG is expected to be the Chevron-led Gorgon complex, which
For Pluto, Woodside is getting equity the Burrup Peninsula.
holds about 40 tcf. Chevron hopes to build
its own LNG export plant on Barrow
Island, but it has run into environmental
concerns there, as well as steadily rising
estimates of the total cost. Some reports
now put the project at nearly $20 billion in
U.S. currency, a big commitment even for
the supermajors involved.
The Gorgon fields are only about 30
miles from Pluto and its pipeline, but the
Gorgon partners want to use Barrow
Island, which has been producing oil since
1964 and has potential for reinjecting the
huge quantities of carbon dioxide that are
in the Gorgon gas stream. ExxonMobil
and Shell are the other partners in Gorgon,
discovered way back in 1981 but still
Customers in Japan
Most of the LNG from Pluto initially
will go to two Japanese utilities, each with
a 5 percent equity stake in the project.
Tokyo Gas and Kansai Electric will take
up to 3.75 tonnes annually for 15 years,
about 85 percent of the first train’s produc-
tion. Each company will operate one LNG
tanker, while Woodside itself will lease
Contracts with the Japanese utilities are
expected to be signed within a month. The
two supply pacts won’t leave much excess
LNG to send to the U.S. West Coast,
where Woodside has proposed an LNG
terminal off California that would use spe-
cial ships with onboard regasifying equip-
Woodside, which is one-third owned by
Shell, will pay for its 90 percent share of
the project using free cash flow from oper-
ations, debt issues, and a dividend rein-
vestment plan. ●
PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 9
● E X P L O R A T I O N & P R O D U C T I O N
Gravel use presents technical challenges
Oil industry, regulators join forces to meet challenges on Alaska’s North Slope, convert abandoned mines into fish, waterfowl habitat
By ROSE RAGSDALE
COURTESY ADF&G, ALASKA DNR
For Petroleum News
mong the most visible and enduring
signs of the oil industry’s presence on
the North Slope are the gravel roads,
pads and airstrips scattered across the
tundra. While these piles of pulverized rock
from ancient rivers appear to be as ordinary
at the gravel roads and structures crisscross-
ing other populated areas of Alaska, they
actually have evolved and challenged the oil
industry for the past 30 years.
Gravel is abundant on the North Slope.
Industry officials say the entire region is
undermined by about 2,000 feet of frozen
gravel and sand once you get below 18
inches of organic soils, lichens, sedges and
various Arctic grasses.
No one knows how much gravel has
been mined on the North Slope, but educat-
ed guesses put the amount in excess of 40
million cubic yards, covering roughly
That may sound like a lot, but it’s actual- Alaska state biologists have monitored this rehabilitated gravel mine since it was converted to fish habitat in 1986. An experimental popu-
ly a fraction of 1 percent of the entire 15- lation of less than 100 Arctic grayling was established in the pond in 1989. In 2002, biologists estimated numbers of Arctic grayling inhab-
million-acre central North Slope and less iting the pond at more than 1,000 fish.
than 3 percent of the operating oil fields,
answer for building and maintaining oil hydrological impact to rivers from this prac- gravel mining in the 1980s.
said Bill Streiver, environmental studies
field facilities in a frozen land of harsh tice,” said William Morris, a biologist with “In the short term when we were out
leader for BP Exploration (Alaska) Inc.
weather and harsher conditions. the Division of Habitat Restoration of the there digging up the gravel in the rivers, it
Put in perspective, gravel infrastructure
But gravel, abundant and benign, still Alaska Department of Natural Resources. wasn’t good for any fish. But if you made
on the North Slope covers roughly twice the
presented technical challenges to North “During breakup, isolated pools would be the river deeper, it might be better for certain
acreage occupied by Atlanta International
Slope oil field operators. left behind in gravel-scraped areas, creating species,” he said.
Airport. Moreover, these pads, roads and
ARCO Alaska Inc., for example, soon a problem with fish entrapment.” Morris said the industry’s extensive use
airstrips are scattered across an expanse the
faced a learning curve in road-grading tech- Though the ultimate impact of the of water taken from deep pools in the rivers
size of West Virginia.
nology. riverbed mining was debatable, Streiver in winter to build ice roads and pads also
In the 1970s, gravel seemed to be the
The gravel, initially mined from the bot- said the industry switched to land-based
see GRAVEL page 10
tom of riverbeds, was rounded rock that did
not compact well and over time, loosely
compacted gravel would fall apart, creating
cracks and fissures in the roads, according
Jim Weeks, a top ARCO executive on the
30 Strong North Slope in the 1970s and 1980s.
One innovative ARCO employee
thought the roads would compact and hold NORTHERN ENGINEERING & ENVIRONMENTAL PERMIT TING ALLIANCE
June 20, 2007, marked the 30th their shape better if the gravel was more
anniversary of the first barrels of
North Slope crude flowing down the angular, Weeks said in a recent interview.
800-mile trans-Alaska oil pipeline from “So we bought a gravel crusher, crushed
Prudhoe Bay to Valdez. Looking back, the native gravel and no more problems,”
it is clear that the role of technology
has been paramount in the progress Weeks recalled.
operators and contractors have made
in improving the efficiency and lessen- Riverbed gravel becomes problem
ing the impact of their operations on
the Arctic environment. In a series of More questions about gravel use arose in
seven articles, Petroleum News will the 1980s.
report on some of the technologies
Regulators became concerned about the NEEPA represents a consortium of Alaska ﬁrms specializing in
developed by the dedicated and inno-
vative men and women who work on impact of gravel mining in riverbeds on environmental permitting, engineering support, and National
the North Slope. These articles will be Arctic fish populations though the actual
followed by “30 Strong,” a full color Environmental Policy Act/Environmental Impact Statement
magazine celebrating three decades of
excavation occurred in winter.
North Slope oil production. “It soon became obvious that there was a studies. We offer complete services to support projects in obtaining
licenses and permits from federal, state, and local agencies.
2000 W. International Airport Road, Suite C-1 • Anchorage, Alaska 99502
10 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007
COURTESY ADF&G, ALASKA DNR
CRAIG GEORGE, NORTH SLOPE BOROUGH DEPARTMENT OF WILDLIFE MANAGEMENT
A broad whitefish caught by state biologists in fish habitat created from a gravel mine on
the North Slope.
Biologist William Morris says the rehabilitated gravel mines on Alaska’s North Slope are a
win-win for the environment. Here Morris drives a boat across Teshekpuk Lake in the
National Petroleum Reserve-Alaska and surgically implants a radio transmitter into a Lake
trout at Teshekpuk Lake.
continued from page 9 brought new challenges when all of the
gravel was removed from a pit.
GRAVEL BP’s Streiver said DNR biologists, then
a part of Alaska Fish and Game, hit upon the
had a potentially harmful effect on fish
“clever idea” of converting the gravel pits
over-wintering habitat, and could even
into additional fish habitat.
result in fish kills.
Today, the oil industry partners with state
Fish habitat is extremely limited in the
biologists to do just that.
Arctic, especially in winter where tempera-
“We had figured out the basics by 2000,”
tures typically drop to minus 60 Fahrenheit
Morris said. “One of the things that turned
and up to six feet of water in most rivers,
out to be fairly important is how close to the
lakes and ponds freezes solid.
shore a gravel mine site is. If it’s too close,
In summer and winter, the industry also
it backfills with seawater and becomes use-
encountered problems with actually sucking
less as fish habitat.
fish out of the water with water and gravel,
“We also figured out that if you put the
gravel mine near a river, chances are very
To avoid these potential environmental
good that a lot of fish will find the pit once
hazards, the oil companies stopped taking
it is rehabilitated. In those pits located a
water from the rivers in winter and started
great distance from a river or creek, the wait
using intake screens when they pumped out
likely will be longer,” he said.
water in summer. These changes reduced
Still, the wait can be worth it.
hazards to fish significantly, Morris said.
One gravel pit in the Kuparuk River field
Gravel mines become fish habitat took more than 20 years for fish to find it.
“Broad whitefish now use the pit as winter
Land-based gravel mining, meanwhile, habitat, and to a lesser extent, other species
of whitefish use it also,” Morris said.
In all, eight gravel mines have been reha-
bilitated and connected to stream channels
on the North Slope. Of the larger older sites,
Morris said a majority have been rehabili-
tated for fish habitat.
He said some of the larger sites that are
not feasible for fish will be reclaimed even-
tually for waterfowl habitat. State regulators
plan to build islands within them for water-
fowl nesting areas far enough from shore to
deter predators such as Arctic foxes.
DNR biologists also figured out that get-
ting the oil field contractors to contour the
sides of a mine to create shallow shelves on
the sides of the pit after gravel mining ends
at a site improves the quality of the resulting
Ideally, the pits-turned-fish-ponds range
from 25-30 feet up to 60 feet deep and in
total area from 15-20 acres to well over 100
“The big thing for fish is deepwater habi-
tat,” Morris said. “In the Arctic, freezing
limits over-wintering habitat. There is very
limited liquid water on the slope in winter.”
More sources of water
The gravel mines-turned-ponds also pro-
see GRAVEL page 11
PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 11
continued from page 10
vide the industry with water in summer for
remote camps and for keeping down dust
on the roads. In winter, they help greatly
with ice road and ice pad construction.
“It’s a win-win for the environment,”
The ponds are able to provide ample
water for industry uses because of the low
density of fish populations on the slope.
“When spring breakup comes, ponds
and lakes on the North Slope fill almost
instantaneously, so water removed during
the winter for ice road and pad construction
is hardly missed,” Morris said.
Having the rehabilitated gravel mines
allows even more fresh water to be stored
over the summer, he added.
Today, rehabilitation happens concur-
rently with the gravel mining. The approach
was successful when gravel was mined to
build both the Northstar and Badami fields,
“The Northstar gravel pit near the Lower
Kuparuk River was designed to mesh with
the river so you wouldn’t know it was there, Map of gravel mine sites that have been converted into fish and waterfowl habitat. (Source: Alaska departments of Fish and Game and
and that’s actually the case,” Morris said. Natural Resources.)
Less gravel mining needed
Meanwhile, a trend nationwide toward
minimizing industry’s impact on the envi-
ronment has brought other changes to grav-
el use on the North Slope. In 30 years, the
FINALLY, JUST WHAT ALASKA NEEDS:
industry has succeeded in reducing the
amount of tundra its operations affect by
more than two-thirds.
“With drilling pads now about 20 per-
MORE OPEN SPACE.
cent of the size they were in the 1970s and
INTRODUCING THE NEWLY EXPANDED ALASKA AIR CARGO.
directional drilling enabling industry to pro-
duce more oil from fewer pads, less gravel
is needed,” Streiver said.
BP spokesman Daren Beaudo said the
next evolution in oil field design will
require even less grave. The new 120-mil-
lion-barrel offshore Liberty field, for exam-
ple, is being developed from an existing
satellite development pad at the Endicott
field “that is being augment with a little 6 PLANES AND MORE. SERVICE TO ALASKA AND BEYOND.
more gravel.” Alaska Air Cargo oﬀers more service to, from and
“We’re eliminating need for a new sepa- within the State of Alaska than any other
rate production facility, albeit a small one
x1 carrier. Period. Not to mention, service
like at Northstar,” Beaudo said. “We’ll also
to over 80 destinations throughout
be able to eliminate a sub-sea pipeline and
the US, Canada and Mexico
drill ostensibly from onshore at a distance
of eight miles.”
x5 as well.
Streiver said BP also won’t need a grav-
el road. “Prior to going to extended reach The state of Alaska is over 570,000 square miles.
drilling at Liberty, the project would have Alaska Air Cargo is going to add another 13,000
required a gravel road,” he said. cubic feet to it for good measure. That’s precisely
The operators are also picking up gravel. the amount of shipping capacity our five newly
“We have a program where we go out to reﬁtted combi 737-400’s and our dedicated 737-400
old abandoned drill pads, pick up the grav- freighter have added. More space. More planes.
el and rehabilitate the sites by doing things
And that’s just the beginning of the improvements
like planting native Arctic grasses,” Streiver
If the reclaimed gravel is contaminated, MORE ON THE HORIZON.
the operator follows regulatory guidelines MORE INFORMATION FOR YOU. Reliability is vital in the shipping industry. That’s
to dispose of it. But if the gravel is clean, the Thanks to new technologies, you now why we are constantly working to deliver a better
company uses it a new location. have access to more shipment product to meet your needs. That means more online
So far, BP has reclaimed gravel from old information than ever before. tools and real-time scanning solutions. And you can
exploration sites and three airstrips west of Along with a simplified be sure we will be monitoring every piece of cargo
the Kuparuk River. reservation process, we now to ensure that it gets where it is going as planned.
“We’ve also picked up parts of produc- oﬀer more tools online — online
tion pads and a man camp,” Streiver said. booking forms, a rate calculator Our commitment to cargo is far more than just a line
“In a couple of cases, we’ve also picked up
and shipment tracking — to help at the bottom of our ads. It’s more than planes, computers
gravel berms around the old reserve pits
make the process easier for you. and hotlines. It’s a commitment to you.
that we had for mud and cuttings in the
“In a way, what we’re doing with the
gravel mines is an extension of this idea that alaskacargo.com TM
you minimize your footprint and where you
can’t minimize your footprint, you look for C O M M I T T E D T O C A R G O
ways to restore the area once you’re done,”
he added. ●
12 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007
● A L T E R N A T I V E E N E R G Y
COURTESY ALASKA POWER CO.
Industry responds to proposed NPR-A regs
ConocoPhillips Alaska and FEX, two companies with significant acreage posi-
tions in the National Petroleum Reserve-Alaska, have responded to the U.S.
Bureau of Land Management’s proposed changes to the NPR-A leasing and uni-
tization regulations. In May BLM published revised regulations that would bring
NPR-A more into line with leasing and unitization procedures in other regions and
The proposed changes apply to topics that include royalty reductions, lease
extensions and the specification of participating areas. And the new regulations
would specify what happens if title to leased federal land is transferred to Arctic
Slope Regional Corp., the Native regional corporation for the North Slope.
Changes to rules for unitization would include the requirement to discuss in the
unit application the proposed methodology for production allocation, provide for
unit renewal upon unit termination and allow time to collect data prior to submit-
ting a unit development plan.
Support The conceptual layout of the hydrokinetic power plant at Eagle on the Yukon River: The teth-
ered twin-turbine unit will be able to float above the riverbed, depending on the water level.
Both ConocoPhillips and FEX expressed support for the BLM proposals.
“CPAI appreciates BLM’s efforts to revise the existing regulations … to miti-
gate the unique conditions and challenges prevailing in the NPR-A and improve
the process by which operations in the NPR-A are conducted,” Erec Isaacson,
ConocoPhillips vice president exploration and land, said in a letter to BLM.
ConocoPhillips recommended some rewording of the definition of a petroleum
Denali funds Yukon
discovery, and suggested that, when a unit is formed, BLM should request that a
non-federal mineral owner with less than 10 percent ownership in the unit join the
“The Bureau of Land Management’s proposed changes to the NPR-A oil and
By ALAN BAILEY
gas regulations are very good and quite necessary to support exploration and APC says that it has been working
development,” said Tim England, FEX senior manager, exploration, in FEX’s for several years with UEK Corp.
response to the BLM proposals. “The remoteness of the region along with the laska Power Co. has announced of Annapolis, Md., to adapt UEK
short exploration and construction seasons make both exploration and develop- that the Denali Commission has
ment very costly. While NPR-A has significant hydrocarbon potential, it probably in-stream turbine technology for
awarded a $1.6 million grant to
lacks prospects large enough for a stand-alone development under the current fis- support the company’s planned
operation in the Yukon River at
cal system. Therefore, exploration and development incentives, such as royalty 100-kilowatt “hydrokinetic” turbine Eagle. UEK turbines have positive
relief, will be necessary to continue exploration activity, placement of infrastruc- power plant in the Yukon River, to sup- buoyancy and are tethered to the
ture and resource capture.” ply electricity to the City of Eagle and water bottom, so that they can
FEX’s response suggested simplifications to some of the language in the pro- the nearby Eagle Village. Situated close float like underwater kites.
posed regulations to where the Yukon crosses the border
—ALAN BAILEY between Alaska and Canada and with a
operation by the fall of 2008, APC says.
combined population of 200, the two
A three-year evaluation of the plant will
communities currently depend on expen-
then enable an assessment of the use of
sive diesel-generated electricity.
the new in-stream turbine technology for
APC is a subsidiary of Alaska Power
electricity generation in communities
& Telephone Co., a major provider of
throughout Alaska and elsewhere.
energy and communications services in
rural Alaska. Renewable resource
“The funding of Alaska’s first river
turbine project signals willingness by the “Research, design and advancement
Denali Commission to solidify a role in of sites conducive to low-impact renew-
promoting the development of renew- able resource energy is a primary focus,”
able resource energy in Alaska,” said said APC President Robert Grimm. “To
Ben Beste, Alaska Power & Telephone’s take a leadership role in the development
lead project engineer. of this technology is a natural extension
The planned river-powered plant will of our vision as an employee-owned
displace the use of up to 57,000 gallons company and a practical opportunity to
of diesel fuel per year and should be in minimize our threshold of energy pro-
duction related greenhouse gas emis-
sions in the field.”
APC says that it has been working for
several years with UEK Corp. of
Annapolis, Md., to adapt UEK in-stream
turbine technology for operation in the
Yukon River at Eagle. UEK turbines
have positive buoyancy and are tethered
to the water bottom, so that they can
float like underwater kites.
The conceptual design for the instal-
lation at Eagle envisages a two-turbine
generator unit. The power cable from the
unit to the shore will pass through a
directionally drilled hole under the
riverbed, Grimm told Petroleum News.
APC says that it has secured permits
from the U.S. Corps of Engineers and
the Alaska Department of Natural
Resources for the Eagle project and that
the company has funded site feasibility
studies and the permitting work. The
company already operates conventional,
low-impact hydroelectric plants on
Prince of Wales Island and in the
Skagway-Haines area of Southeast
Alaska, APC says.
The Denali Commission is a federal-
state partnership that channels federal
funding into improving Alaska’s rural
PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 13
● E X P L O R A T I O N & P R O D U C T I O N
Triple play in Canada’s oil sands
Royal Dutch Shell launches 400,000 bpd upgrader plans; Marathon bids to acquire Western Oil Sands and enter upstream
By GARY PARK Canadian producers to support a US$1 bil- Clarence Cazalot described Athabasca as
If the transaction is completed, lion upgrade of its 100,000 bpd Detroit “truly a world-class asset with multi-billion
For Petroleum News
Marathon will have a 20 percent refinery to run exclusively on Canadian barrel, long-life resource potential,” that
T stake in Athabasca, which is
he giant Athabasca Oil Sands Project feedstock and has been studying expansion Marathon, because of its Midwest down-
is moving from Canadian to interna- operated by Shell as a 60 percent of two U.S. Midwest refineries so that they stream operations, is strategically placed to
tional control, with three deals carry- partner and has Chevron Canada can handle 420,000 bpd of Canadian out- integrate into its operations.
ing a combined value of up to C$38 put. Marathon estimates Athabasca’s base
holding the remaining 20 percent.
billion getting unveiled July 30 and 31. If the transaction is completed, mine and five planned expansions give it a
Royal Dutch Shell, having brought its Marathon will have a 20 percent stake in net resource of 1.5 billion barrels of bitu-
The conclusion among analysts was that
Canadian unit under Shell’s global umbrel- Athabasca, which is operated by Shell as a men, plus 500 million barrels that should be
Shell, despite the staggering costs, is bull-
la, said it is embarking on one of the largest 60 percent partner and has Chevron Canada recovered from other mining expansions.
ish on the oil sands.
undertakings in Canadian construction his- holding the remaining 20 percent. Ells River’s leases contained an estimat-
tory — a 400,000 barrel-per-day oil sands Marathon would grow In addition, it will pick up 20 percent of ed 600 million barrels of net resource.
upgrader that could cost C$22 billion to Chevron Canada’s Ells River project, It estimated that the total 2.6 billion bar-
C$27 billion over the next 15 to 20 years.
Canadian feedstock which is targeting 100,000 bpd of produc- rels of net mineable bitumen and in-situ
In short order, that was followed by While they probed that decision, they tion by 2015. resource will be acquired for about
word that Marathon Oil has a deal worth were kept on their toes with disclosure of Chevron has 60 percent of Ells River, US$2.38 per barrel.
C$6.5 billion, including C$736 million of the Marathon-Western deal that will give with Shell and Western sharing the balance. The deal came eight months after
debt, to purchase Western Oil Sands, a 20 the fourth-largest integrated oil company in Western hired TD Securities and Goldman
percent partner in Athabasca. the United States 31,000 bpd of feedstock, Cazalot: Athabasca Sachs as special advisors to seek ways to
For good measure, Suncor Energy said growing to 130,000 bpd by 2020, for its ‘world-class asset’ maximize value through partnerships or
it has applied for regulatory approval to refinery network.
Marathon Chief Executive Officer
expand its oil sands mining operation at a Marathon is already inviting bids from see OIL SANDS page 14
cost of C$4.4 billion, adding 120,000 bpd
of bitumen production in the 2011-2013
period. That is part of its strategy to achieve
output of 500,000-550,000 bpd in the 2010-
Although corporate sanctioning won’t
take place until 2009, Shell filed a regulato-
ry application July 30 to expand its
Scotford refinery complex near Edmonton
in four stages of 100,000 bpd each.
The company said the project is driven
by its “desire to have the flexibility and
The ultimate cure
option to upgrade bitumen from oil sands
developments into higher value crude oil
products” which can be used as feedstock
by petroleum refineries in North America
Greg Stringham, vice president of the
Canadian Association of Petroleum
for that student
loan: a job.
Producers, told the Calgary Herald that the
so-called Scotford Upgrader 2 Project will
boost Alberta’s upgrading capacity to about
3.1 million bpd by 2015, meaning about
75-80 percent of all bitumen upgrading will
be done in Alberta ? an estimate that will
please Alberta Premier Ed Stelmach who
has given priority to keeping as much BP is hosting an Oil and Gas Industry College
value-added upgrading and processing as Career Fair. It’s a great opportunity to meet
possible within the province.
the major industry players and the contractors
who support the oil and gas sector. Alaskans
can learn more about internships, training
and job opportunities available. Come ﬁnd
out how to make a career in Alaska’s oil and
gas industry part of your future.
Saturday, August 11th, 2007; 10 a.m. - 4 p.m.
BP Headquarters Building
900 E. Benson Blvd.
For more information call (907) 522-8209,
(907)564-5224 or e-mail JoAnne.Efta@bp.com.
14 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007
● L A N D & L E A S I N G
State approves West Sak PA expansion
By KRISTEN NELSON expansion of the Kuparuk River unit in additional data.
2002. West Sak is the shallower horizon The division’s decision is dated July
The division said the 2002 expansion at Kuparuk and produces heavier 27.
he Alaska Division of Oil and Gas required ConocoPhillips to drill within oil than the deeper Kuparuk
has approved the second expansion expansion area 4 by June 1, 2004, and reservoir for which the field is Participating areas are producing areas
of the West Sak participating area provided that expansion area 4 lands not named. … West Sak is “part of a State regulations require that a partic-
within the Kuparuk River unit. West included in the West Sak participating ipating area be expanded to include
large deltaic complex that also
Sak is the shallower horizon at Kuparuk area (the area under production) by June acreage which data reasonably shows to
and produces heavier oil than the deeper 1, 2007, would contract from the unit on
includes the Schrader Bluff
be capable of producing hydrocarbons in
Kuparuk reservoir for which the field is that date. sands,” the division said. paying quantities.
named. The drilling commitment was deferred The division said the West Sak sands
ConocoPhillips Alaska, Kuparuk to 2006 and the expansion area 4 leases, ConocoPhillips had drilled six wells in being produced within the Kuparuk
River operator, requested the expansion tracts 160 through 163, were each segre- the proposed expansion area. River unit West Sak participating area
April 9. The division also required con- gated into two tracts, A and B. The In the April application for expansion “are part of the much larger shallow
traction of the Kuparuk River unit based drilling commitment was deferred again of the participating area ConocoPhillips Upper Cretaceous reservoirs now under-
on the findings and decision in the eighth in 2006; by April of this year requested the inclusion of four leases going development for production of
(including three of the eight segregated North Slope ‘heavy oil’ in the KRU and
tracts) in the participating area. The other the adjacent Milne Point, Prudhoe Bay
EXPLORATION & PRODUCTION five segregated tracts would be contract-
ed from the unit. The contracted leases —
and Nikaitchuq units.” The West Sak
reservoir depth ranges from 2,700 feet
on the Kuparuk River unit’s southeast true vertical depth in the southwestern
Gas shut-in to conserve bitumen corner — are beyond their primary terms Kuparuk River field area to approximate-
Alberta’s energy regulator has expanded its shut-in of natural gas wells in favor and are not held by any participating area ly 3,800 feet tvd in the northeast. West
of protecting the value of oil sands bitumen. within the unit, the division said. Sak is “part of a large deltaic complex
The Energy and Utilities Board stopped production from 121 wells represent- When ConocoPhillips filed its applica- that also includes the Schrader Bluff
ing 42 billion cubic feet of natural gas. EnCana owns 120 of the wells and tion for participating area expansion in sands,” the division said.
Canadian Natural Resources the remaining single well. April the division said there was insuffi- Ownership of the tracts is held 52.22
The board determined that gas production has lowered pressure in the geolog- cient data. ConocoPhillips provided more percent by ConocoPhillips Alaska, 37.02
ical zones of bitumen below the gas layers. data, but the division said it “again percent by BP Exploration (Alaska), 4.95
It said the situation could endanger eventual recovery of the bitumen deposit, requested the full data set,” and informed percent by Union Oil Company of
which is estimated to be 50 times larger than the shut-in gas. the company that without the necessary California (now owned by Chevron) and
Four years ago, the board halted gas output from 900 wells, holding reserves data it couldn’t continue to process the 5.8 percent by ExxonMobil Alaska
of 280 billion cubic feet, to protect 25.5 billion barrels of bitumen with a value application. Production.
500 times greater than the affected gas. On June 1, ConocoPhillips requested a Leases ADL 385175, 380062,
It is now looking at whether gas production should be curtailed in other 90-day extension of the automatic con- 390706, 390707 and 390708 contracted
regions, although details of a potential review are still being developed. traction; the division granted an extension from the Kuparuk River unit, effective
EnCana, which is also an oil sands producer, said it needs to review the ruling until June 15. The division said it met June 1; leases ADL 390705, 380058,
before making a comment. with ConocoPhillips June 12 “to discuss 385172 and 25663 are included in the
the issues and concerns of both parties” West Sak participating area effective
and on June 15 the company submitted June 1. ●
continued from page 13 ing investors think a better offer could yet
OIL SANDS Reminded that Western had estimated
its share value at C$42, Dyck said the due
possible outright sale.
diligence process over recent months has
David Dyck, Western’s chief financial
taken all of the company’s risks into
officer, told analysts July 31 that the
process attracted interest from “numerous
The transaction also gives Western
parties,” resulting in Western deciding that shareholders a chance to participate in the
its best bet was to sell its oil sands opera- company’s highly controversial entry to
tions. Iraq through its wholly owned subsidiary
He said that Shell and Chevron — Western Zagros.
Western’s Athabasca partners who were They will receive one share and one-
both touted as potential buyers — were tenth of a share purchase warrant in the
“well aware of the process,” but details of spinoff, which hopes to explore for and
the Marathon arrangement were not dis- develop oil in Iraq’s Kurdistan region.
closed to them prior to the announcement. Western Zagros will receive C$82.5 mil-
The Marathon cash-and stock bid lion from Western, while Western insiders
involves an offer of C$35.50 cash to have agreed to contribute another C$10
Western shareholders or 0.5932 common million at a price of C$2.50 per share,
shares of Marathon for each Western share which Western executives believe is
to a limit of C$3.8 billion cash and 34.3 enough to fund an exploration program.
million Marathon shares. That breaks down Dyck said results from a drilling pro-
to 65 percent cash and 35 percent shares. gram in 2008 will provide a more accu-
The C$34.50 per share offer was a mod- rate guide to the resource potential, which
est 4 percent above Western’s previous Western has previously said could run to
close on the Toronto Stock Exchange, but 1 billion barrels if a field were discov-
resulted in a sharp uptick July 31, indicat- ered. ●
PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 15
continued from page 1
E&P companies with prospective
natural gas acreage in northern LAND & LEASING
Alaska, including Anadarko
An agreement inked with former
Alaska Gov. Frank Murkowski for BP,
Petroleum, are concerned the New data issued for North Slope,
ConocoPhillips and ExxonMobil to build companies that ultimately build
the pipeline would limit access to
Beaufort Sea areawide lease sales
the 3,600-mile gas line unraveled last
The Alaska Department of Natural Resources has issued decisions of “substantial
year in the face of political and public it, especially if the pipeline owners
new information” for the North Slope and Beaufort Sea areawide oil and gas lease
complaints that the three owners of the are their competitors in gas sales scheduled for Oct. 24.
proposed pipeline were given billions in production, BP, ConocoPhillips and DNR Commissioner Tom Irwin said in a
unwarranted concessions. ExxonMobil. Fish and Wildlife found there
July 25 decision that the state received com-
In 2005, the Federal Energy was sufficient evidence to
ments on the sales from the U.S. Fish and
Regulatory Commission, under a man-
a misreading of these regulations,” wrote Wildlife Service outlining eight studies Fish warrant listing and prepared a
date from Congress to expedite develop-
Ginsburg. “They misread (section) 157.37 and Wildlife and the U.S. Geological proposed rule in January with a
ment of Alaska natural gas, adopted rules
as asserting the commission has authority Survey are undertaking in 2007 as part of a final listing determination to be
for regulating an Alaska gas pipeline sys-
to condition the issuance of an initial cer- status assessment of the current status of
tem. made in January 2008 and DNR
tificate upon the project sponsor’s agree- polar bears worldwide. The assessment is
being done in response to a petition request- said the information provided by
BP, Conoco, Exxon challenge ment to build a pipeline capable of carrying
more gas than the project sponsor propos- ing that Fish and Wildlife list polar bears as Fish and Wildlife “is substantial
FERC regulations threatened under the Endangered Species new information.”
es. … As commission counsel acknowl-
BP, ConocoPhillips and ExxonMobil, edged at oral argument, (section) 157.36 Act due to loss of sea ice habitat.
worried that FERC overstepped its author- purports only to allow the commission, in Fish and Wildlife found there was suffi-
ity with two of the new rules, challenged order to introduce new competitors into the cient evidence to warrant listing and prepared a proposed rule in January with a final
the regulations in the appeals court last market, to allocate such capacity as the listing determination to be made in January 2008 and DNR said the information pro-
summer. sponsor itself proposes to add. So under- vided by Fish and Wildlife “is substantial new information.”
Regulations 157.36 and 157.37 are stood, the regulation ensures that a new
designed to protect the ability of Alaska shipper willing to sign a long-term contract No new mitigation measures
energy suppliers that do not own the gas may gain access to a portion of any pro- The department said that since the decision on listing the polar bear is not final, “it
pipeline to deliver their fuel to market, posed expansion capacity. is premature to develop new mitigation measures or lessee advisories to supplement”
according to the commission. Part of a set “Indeed, it would not make sense for the the areawide best interest findings for the two sales but said that in the interim it is
of 10 regulations, the rules are guidelines commission to rely upon (section) 157.36 advising oil and gas operators that if polar bears are listed under the Endangered
for allocating capacity in open seasons held to order an increase in expansion capacity Species Act, consultation with Fish and Wildlife “may be required prior to initiation
for the proposed 52-inch-diameter pipeline. above that proposed by the sponsor,” of activities in the proposed lease sale areas.” The state said it also encourages lessees
Open seasons allow shippers to bid for Ginsburg observed. to participate in the U.S. Fish and Wildlife Service incidental take program for
space on pipelines to transport their oil, gas nearshore and coastal exploration, development and protection.
or other products to market. Pipeline own- Court: federal law prohibits compelling Bid opening for the sales will begin at 9 a.m. at the Wilda Marston Theater in
ers then build or expand a line to meet the enlargement Anchorage’s Loussac Public Library.
demand it attracts during that period. Tracts 27 through 39, east of Kaktovik, and tracts 555 and 557 through 573,
E&P companies with prospective natu- Though FERC’s attorney argued that
the last clause of 157.37 could be interpret- between Tangent Point and Point Barrow, are deferred from the Beaufort Sea sale.
ral gas acreage in northern Alaska, includ- The minimum bid is $10 per acre on all tracts in both sales. Royalty rates vary from
ing Anadarko Petroleum, are concerned the ed to authorize the commission to require
an unwilling expansion of capacity before 12.5 percent to 16.6667 percent and the length of the leases from five to 10 years.
companies that ultimately build the Details are available on the division’s Web site at www.dog.dnr.state.ak.us.
pipeline would limit access to it, especially issuing a certificate only in the interest of
promoting competition, the court said the —PETROLEUM NEWS
if the pipeline owners are BP,
ConocoPhillips and ExxonMobil, their commission itself has not taken that posi-
competitors in gas production. tion and may never do so, particularly in
view of a prohibition in federal law against
Court: owners misinterpreted rules compelling the enlargement of transporta-
In a 12-page opinion written by Chief
Reacting to the appeals court ruling July
Judge Douglas H. Ginsburg on behalf of a
31, ExxonMobil spokeswoman Margaret
three-judge panel in the consolidated case,
Ross said, “We respect the court’s finding
the appeals court found that BP,
that under applicable law the commission
ConocoPhillips and ExxonMobil misinter-
does not have the authority to compel the
preted the two rules in question.
enlargement of transportation facilities in
The three companies argued that
the initial project design.”
FERC’s rules would force the pipeline’s
A FERC spokeswoman Aug. 2 said the
sponsor to build a larger pipeline than nec-
commission declined to comment on the
essary to carry natural gas that might never
be discovered, according to the court deci-
ConocoPhillips and Anadarko declined
sion. The companies also argued that the
to comment, and BP could not be reached
large costs of paying to build the pipeline
for comment by press time.
for companies that hadn’t committed to use
In July, Alaska Gov. Sarah Palin said the
it might make the project too risky to con-
state is again prepared to receive applica-
tions to build the proposed gas pipeline
The court disagreed.
“The petitioners’ facial challenge to
—The Associated Press contributed to
(sections) 157.36 and 157.37 is based upon
16 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007
Companies involved in Alaska and northern
Canada’s oil and gas industry Business Spotlight
ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS
A Horizon Well Logging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Hotel Captain Cook
Acuren USA (formerly Canspec Group). . . . . . . . . . . . . . . . . . 4
Industrial Project Services
ACE Air Cargo
Jackovich Industrial & Construction Supply
Judy Patrick Photography. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Air Logistics of Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
King Street Storage
Alaska Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Kuukpik - LCMF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Last Frontier Air Ventures
Lounsbury & Associates
Alaska Frontier Constructors . . . . . . . . . . . . . . . . . . . . . . . . . 12 Alicia Orange, GIS Analyst
Lynden Air Cargo
Alaska Marine Lines
Lynden Air Freight
Alaska Railroad Corp.
Alaska Regional Council of Carpenters (ARCC)
Lynden Inc. Petrotechnical
Alaska Rubber & Supply
Lynden Logistics Resources of
Alaska Steel Co.
Lynden Transport Alaska (PRA)
Mapmakers of Alaska
Alaska Tent & Tarp Petrotechnical Resources of
Alaska Textiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Alaska, better known as PRA, pro-
Alaska West Express vides high-quality, professional geo-
Alliance, The logical, geophysical and engineering
American Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 consultants to the Alaska oil and gas
MRO Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Arctic Controls community. PRA employees have
Arctic Foundations extensive experience on the North
Arctic Slope Telephone Assoc. Co-op. . . . . . . . . . . . . . . . . . . . 4
Arctic Wire Rope & Supply
N-P Slope, the Interior basins and Cook
Inlet, and offer a diverse array of
ASRC Energy Services technical capabilities in geoscience
Nabors Alaska Drilling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Engineering & Technology and engineering.
Operations & Maintenance Formerly an exploration geophysi-
Natco Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Pipeline Power & Communications cist at Mobil, Alicia Orange joined
Nature Conservancy, The
NEI Fluid Technology PRA in November 2006. Her favorite
area within GIS is interface cus-
B-F NMS Employee Leasing
tomization, creating a setting to opti-
mize the use of various spatial data
North Slope Telecom
Badger Productions for exploration purposes. Alicia
Northern Air Cargo
Baker Hughes enjoys exploring the geology, plants
Northern Transportation Co. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Bombay Deluxe Restaurant and animals of places she and hus-
Northland Wood Products
BP Exploration (Alaska). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 band Vernon, a geophysicist at
Northwest Technical Services
Broadway Signs Pioneer Natural Resources in
Offshore Divers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Brooks Range Supply Anchorage, visit, along with their two
Canadian Mat Systems (Alaska) teenagers, Lindsey and Nick.
Capital Office Systems
Opti Staffing Group
Carlile Transportation Services
Panalpina. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Chiulista Camp Services
PDC Harris Group
Peak Oilfield Service Co.
Penco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Petroleum Equipment & Services
Petrotechnical Resources of Alaska
ConocoPhillips Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Prudhoe Bay Shop & Storage
Construction Machinery Industrial
Contract Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Rain for Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Salt + Light Creative
Doyon Universal Services
Egli Air Haul
Engineered Fire and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Spenard Builders Supply
Epoch Well Services
ESS Support Services Worldwide
3M Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Evergreen Helicopters of Alaska
Tire Distribution Systems (TDS) . . . . . . . . . . . . . . . . . . . . . . . 15
Equipment Source Inc.
Total Safety U.S. Inc.
F. Robert Bell and Associates
TOTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Fairweather Companies, The
Totem Equipment & Supply
Tubular Solutions Alaska
Friends of Pets
Udelhoven Oilfield Systems Services
Frontier Flying Service
G-M Univar USA
U.S. Bearings and Drives
Great Northern Engineering. . . . . . . . . . . . . . . . . . . . . . . . . . 17
All of the companies listed above advertise on a regular basis
Holaday-Parks with Petroleum News
PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 17
continued from page 1 Palin calls special session on the net. The PPT was proposed by the
The main BP exploration acreage administration of former Gov. Frank
INSIDER that Phillips oversees in Alaska is of Alaska Legislature to Murkowski as a companion to the gas
in the 1002 area of the Arctic review new Petroleum pipeline contract which Murkowski
163.5 billion barrels of undeveloped Profits Tax
National Wildlife Refuge. … The negotiated with the North Slope gas
reserves, representing oil that could be owners, BP, ConocoPhillips and
company also has the Beaufort
produced using current technologies in ALASKA GOV.
Sea Liberty prospect, which is ExxonMobil.
today’s economy. SARAH PALIN said
The gas pipeline contract failed to
It also lists separately 10.3 billion moving toward development; a Aug. 2 that she will
receive legislative approval, but the tax
barrels of reserves that are now under lease between Liberty and the announce details of
passed, although at a higher rate than
active development. Badami unit; a lease with a special session of
that proposed by Murkowski.
That represents a sizeable chunk of the Alaska
ConocoPhillips and ExxonMobil There have been concerns about the
BP’s estimate of 1.37 trillion barrels of Legislature relating
north of Duck Island; and one to the Petroleum
state’s ability to audit costs which oil
worldwide reserves. and gas producers deduct under PPT as
It also brings BP into line with others lease between the Milne Point and Profits Tax at a
Prudhoe Bay units. well as concerns about ethics issues sur-
who have recognized the oil, including press conference Alaska Gov.
Sarah Palin rounding the battle over the bill. Three
the U.S. Department of Energy, Aug. 3.
legislators who voted on PPT have been
Cambridge Energy Research Associates the deepwater Gulf of Mexico, Egypt, The Legislature
arrested and accused of ethics violations
and the International Monetary Fund. Trinidad and the Asia-Pacific region. He passed the new tax last August. The
involving an oil industry service compa-
But BP remained the most significant only worked in Alaska once, from 1994 state’s petroleum production tax was for-
holdout, despite more than C$125 billion to 1996, as manager of the company’s merly a tax on the gross; the PPT is a tax
of planned investment and predictions of interest in the Kuparuk River field.
output tripling to 3 million barrels per BP spokesman in Alaska, Daren continued from page 1
day over the next decade. Beaudo, says BP’s focus and strategy Kvisle suggested that part of what
The company weakened in the face of
mounting evidence from the Alberta
for its business in Alaska hasn’t MAC LINE has slowed the regulatory process
changed. has been the fact that matters
Energy and Utilities Board, which lists “We are focused on four things: man- The big issues are the most expensive
the recoverable resources from the oil
before the regulatory panels are
age the light oil decline, accelerate capital costs “we’ve seen for a long
sands at 178.7 billion barrels. renewal of the North Slope infrastruc-
“in many cases social and not
time,” uncertainty about gas prices over a
A company spokesman said the BP ture, unlock heavy oil, and bridge to 30-year time frame and settling on a fis- directly related to the construction
standard is not how much oil is buried in gas,” he told Petroleum News July 30. cal regime with the Canadian govern- of a pipeline.”
the sands, but whether it can be econom- As for Sandy Phillips and her meet- ment.
ically produced. ing in Girdwood, Beaudo said, “Sandy “On top of that we have got this C$16.2 billion, under control and develop
Having sold the bulk of its oil assets is a staff of one, responsible for any- incredibly difficult regulatory environ- a comfort around them; see “this endless
to Canadian Natural Resources in the thing to do with BP exploration in ment,” Kvisle said. regulatory process” concluded; reach
1990s, BP is left with only some deeply Alaska — since I’ve been here, agreement between the parties and the
buried deposits in the Athabasca oil December 2002, at least. We still have a Fourth year of trying government; and “see a gas price outlook
sands region of Alberta. few exploration-tagged interests and she to get approvals that makes (the project) fundamentally
However, the company has plans to has responsibility for those. … But at attractive,” Kvisle said.
He noted that the MGP is into its
invest heavily in modifications to its this time we do not have any plans to “There is much to be done. I hope we
fourth year of trying to get approvals
Whiting, Ind., refinery to process heavy become any more involved in Alaska can get to the next stage soon,” he said.
from regulators, having preceded that
oil from Alberta. exploration.” TransCanada entered the project by
with the work needed to prepare for the
That raises the possibility of BP fol- In regard to the Girdwood seminar, agreeing to finance the regulatory costs
lowing the lead of EnCana and he said, “We have many technical disci- faced by the Aboriginal Pipeline Group,
He suggested that part of what has
ConocoPhillips by forming a joint ven- plines in BP that have global networks which is entitled to a 33.3 percent equity
slowed the regulatory process has been
ture with an oil sands producer to take a attached to them. The purpose of these stake in the Mackenzie Valley pipeline.
the fact that matters before the regulatory
stake in both the upstream and down- networks is to share information and In return, if a decision is made to
panels are “in many cases social and not
stream sectors. identify and take advantage of synergies. build, TransCanada has an option to
directly related to the construction of a
—GARY PARK As such, Alaska still remains connected acquire 5 percent of the anchor capacity
with the broader parts of the BP Group For the project to go ahead, the propo- and up to 50 percent of all or part of any
Business as usual for BP and will from time to time host nents must get the capital costs, now interests sold by the anchor producers.
events/clinics and seminars on subject —GARY PARK
in Alaska, exploration matters ranging from peripheral to
rumors just core.”
that — rumors BP disbanded its 30-35 person explo-
ration unit in Alaska in late 2001 after
AN INTERNAL SEMINAR about the
drilling its Trailblazer prospect in the
oil and gas potential of the Arctic, host- National Petroleum Reserve-Alaska,
ed recently in Girdwood by BP’s Alaska which it then sold along with most of its
exploration staff of one (Sandy Phillips) Alaska exploration acreage.
has sparked speculation that BP is con- The main BP exploration acreage that
sidering resuming an exploration pro- Phillips oversees in Alaska is in the
gram in the state; speculation, the com- 1002 area of the Arctic National
pany says, that has no foundation in Wildlife Refuge, which is closed to oil
reality. and gas exploration and development.
Admitting there The company also has a lease with
has been no official ConocoPhillips and ExxonMobil north
word from BP, a of Duck Island and one lease between
reliable Petroleum the Milne Point and Prudhoe Bay units.
News source within According to Beaudo, BP also has a
BP said in mid-July, couple of small leases the company
Tony “Hayward, “picked up in last two years immediate-
who’s taken John ly adjacent to Liberty (Beaufort Sea
Browne’s place as prospect moving toward development)
CEO of BP, comes as a way to buffer our position there.”
from the explo-
ration side of the company. And the man
who took Hayward’s place as head of
BP E&P, Andy Inglis, was deputy chief
of E&P and part of the company’s exec-
utive team. There’s been no official
word that things will change in Alaska,
but it only stands to reason London will
review the possibility. The company
needs reserves. … And then Sandy
Phillips pulls in top geologists from
around the world for this Arctic seminar,
well, it makes one wonder.”
Up until Inglis stepped into
Hayward’s shoes in February, he was
responsible for BP’s growth areas,
including Azerbaijan, Angola, Algeria,
18 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007
PETROLEUM NEWS • WEEK OF AUGUST 5, 2007 19
continued from page 1 and gas activity to take place while prior-
itizing the preservation of the Beaufort continued from page 1 cast targets it will be a “big deal for our
CLOSER economy and markets,” Bodman said.
Sea marine mammal and hunting areas
for the subsistence communities.” PROTECT He said that although Canada and the
migration paths through the Beaufort United States are on the same page in
Sea. NSB opposition ventional energy resources.” tackling climate change, the challenge is
Mexico’s Energy Secretary Georgina to find ways of balancing economic
The North Slope Borough has consis-
Months of negotiation Kessel said the treaty opens the door to a growth and global warming.
tently opposed offshore oil and gas wide range of initiatives “such as hydro-
In a final conflict avoidance agree- Achieving the right balance is a “very
exploration and development, because of gen and fuel cells, clean coal and carbon
ment hammered out during the course of formidable task. … Whatever happens
concerns about potential impacts on sub- dioxide capture and storage, ethanol and
several months of negotiation, Shell has you will damage economic growth
sistence hunting and possible environ- biofuel production, small scale
agreed to terms that will, among other because it’s going to cost something to
mental impacts. The borough has ques- hydropower and energy efficiency tech-
things, ensure that the Cross Island whale remove carbon dioxide.”
tioned the practicality of cleaning up an nologies.”
hunt close to the planned drilling area can “If you go too far you will destroy
oil spill in ice-infested waters. Lunn said Canada’s push to exploit
proceed unhindered. Under the agree- economic growth and, if you don’t go far
And, when Alaska’s Office of Project wind, solar, biomass and tidal power is
ment, Shell will only move one of its enough, you won’t deal with the underly-
Management & Permitting proposed on part of its drive to achieve low or zero
drillships, the Frontier Discoverer, into ing issue of global warming,” Bodman
June 19 a determination of consistency fossil-fuel emissions.
the Sivulliq area prior to the Cross Island said.
with the Alaska Coastal Management
whale hunt. The Frontier Discover will For that reason, he said the U.S. is not
Plan for Shell’s drilling program, the bor- Canada to tackle standby power ready to set firm standards and goals.
cease drilling operations on Aug. 25, ough requested elevation of that determi-
move out of the Sivulliq area within two He said the federal government will “The idea of making what I perceive
nation to the commissioner of the Alaska
days and return with the Kulluk drillship introduce measures in 2008 and even to be a rather arbitrary, difficult-to-meas-
Department of Natural Resources. The
after the end of the hunt. tougher rules in 2010 to tackle so-called ure, so-called firm commitment is not
borough expressed numerous concerns
“We are very glad that Shell has decid- standby power — the energy that is wast- something we’re prepared to do at this
about the Shell program, including ques-
ed to recognize the risks to our bowhead ed by appliances such as microwaves, time,” he said.
tions relating to waste disposal, the
whale resource, our bowhead whale sub- TV sets and computers that are left on 24
potential for an oil or fuel spill and Canada, U.S. oppose subsidies
sistence hunt and the lives of our hours a day.
OPMP’s ability to fairly evaluate the
hunters,” said Harry Brower Jr., chairman He said the average Canadian home Where Canada and the U.S. are in
complete timeframe up to 2009 of the
of AEWC. “… We are facing many has 25 appliances that consume standby lock-step is rejecting any suggestion of
changes, especially from oil and gas, so power. If all were turned off it would indirect subsidies to advance the use of
On July 19 the DNR commissioner
we have to work together to protect our save between 5 and 10 percent of house- alternative, renewable fuel supplies.
convened a meeting of interested parties,
subsistence resources and our way of hold electricity consumption, enough to Bodman and Lunn flatly rejected a
as part of the ACMP determination eleva-
life.” power 400,000 homes. suggestion by ConocoPhillips Chief
tion process. That meeting resulted in
“Shell appreciates the considerable Bodman said the U.S. is also making Executive Officer James Mulva who
three alternative measures that Shell must
effort the Alaska Eskimo Whaling great strides in saving energy by promot- urged the U.S. government to consider
incorporate into its Beaufort Sea project
Commission has made in joining us to ing energy saving products. baseline pricing, such as $60 per barrel
description. And, subject to Shell incor-
create a comprehensive plan of commu- But he left no doubt that fossil fuels for oil, to create the fiscal certainty need-
porating those measures, the commis-
nications, mitigation and cooperation in will continue to meet the bulk of U.S. ed for the industry to pursue alternative
sioner confirmed a final OPMP determi-
the 2007 Conflict Avoidance needs and made particular mention of ris- fuels.
nation of ACMP consistency.
Agreement,” Shell spokesman Curtis ing output from the Alberta oil sands. Lunn said his government will never
Smith told Petroleum News July 27. Concerns addressed “We are very grateful for the contribu- take an active role in price setting,
“Shell believes this agreement assures we tion of Canada’s natural resources,” he regardless of the objectives or its desire
In his response to the North Slope said, mentioning his visit to the oil sands
are taking all reasonable precautions to for price stability.
Borough’s elevation request, last year.
avoid conflicts with subsistence activities “I agree with him,” Bodman said in
Commissioner Irwin said that he believed If oil sands production meets its fore-
vital to the people of the North Slope. We response to Lunn’s remarks. ●
will work together to enable efficient oil see CLOSER page 20
20 PETROLEUM NEWS • WEEK OF AUGUST 5, 2007
continued from page 19 Alternative measures tingency plan; and any necessary drilling permits.
The conflict avoidance agreement with the Alaska
CLOSER The alternative measures that DNR now requires Shell
Eskimo Whaling Commission that has now been com-
to incorporate into its Beaufort Sea project consist of:
pleted may enable the issue of marine mammal inciden-
that the alternative measures developed as a result of the 1. The adoption of a series of alternative measures
tal take authorizations from the U.S. Fish and Wildlife
July 19 meeting addressed the borough’s concerns and stipulated by the Alaska Department of Environmental
Service and the National Marine Fisheries Service.
thus justified a final determination of ACMP consisten- Conservation on July 25 relating to Shell’s oil discharge
Shell spokesman Curtis Smith told Petroleum News
cy. prevention and contingency plan. Shell must modify that
Aug. 2 that FWS had issued an authorization for Shell’s
“I take this elevation very seriously and I regard the plan in the light of any pertinent new information that
Chukchi Sea seismic program, but that neither FWS nor
issues raised by the North Slope Borough as very emerges about Shell’s drilling plans in 2008 and 2009.
NMFS had yet issued authorizations for the Beaufort
important issues,” Irwin said. “I am grateful for the DEC also wants to know about any changes in Shell’s
NSB’s willingness to share with us, as resource man- contractual arrangements for oil spill response. Shell
And there’s no word yet on the outcome of an appeal
agers, its traditional knowledge regarding subsistence must include in its contingency plan a description of the
by the North Slope Borough and several environmental
activities and bowhead whales. I also appreciate the methods to be used to remove residue from in-situ burn-
organizations to the Environmental Appeals Board
NSB’s recognition of the importance of Shell’s pro- ing of spilled oil. And the North Slope Borough must be
against Shell’s air quality permits, issued by the U.S.
posed activities to the State of Alaska and the residents the designated local on-scene coordinator for oil spills.
Environmental Protection Agency for the Beaufort Sea
of the NSB, and NSB’s willingness to find a way to 2. The adoption of an adaptive management plan or
move forward.” conflict agreement with subsistence hunters for the 2007
But, in any case, Shell cannot start its drilling activi-
And Ed Fogels, acting director of OPMP, told drilling program, and a commitment to adopt similar
ties until at least Aug. 14, when the U.S. Court of
Petroleum News Aug. 2 that the conflict avoidance plans for the 2008 and 2009 seasons.
Appeals for the 9th Circuit will hear oral arguments
agreement signed on July 24 had factored into the com- 3. An agreement to review the consistency determina-
relating to a motion to suspend the Shell drilling pro-
missioner’s decision. tion for Shell’s 2008 and 2009 drilling programs, in the
gram, pending a decision in an appeal by the North
“That gave us a lot more comfort in the determina- light of any changes to those programs, recognizing that
Slope Borough and the Alaska Eskimo Whaling
tion,” Fogels said. experience gained in 2007 will likely impact the drilling
Commission against MMS approval of Shell’s Beaufort
Fogels commented that Shell had made a major con- program.
Sea exploration plan.
cession in agreeing to suspend its operations during the Two other appeals, both by groups of environmental
Cross Island whale hunt. Necessary steps
organizations, against MMS approval of the Shell plan
“I find that Shell’s negotiated conflict avoidance The ACMP consistency determination is an essential are going through the 9th Circuit Court. The court has
agreement will avoid and minimize impacts to NSB’s requirement for final U.S. Minerals Management issued a consolidated briefing schedule for all of the
subsistence uses,” Irwin said in his elevation response. Service approval of Shell’s Beaufort Sea exploration cases, with opening briefs due on Aug. 17 and answer-
plan; the company’s oil discharge prevention and con- ing briefs due on Sept. 26. ●
Begging to differ
on oil sands
An Alberta government multistake-
holder committee assigned to chart a
course for oil sands development
achieved consensus on 96 of its 120 rec-
ommendations. But where there was
disagreement it was deep, with the 19
members of the committee unable to
reach unanimity on the most pressing
environmental issues, such as water use
and targets for greenhouse gas emis-
sions and the push by some members to
impose a moratorium until those matters
The committee was drawn from
provincial and municipal governments,
aboriginal communities, environmental
groups and industry. The findings were
submitted to Energy Minister Mel
Knight, Environment Minister Rob
Renner and the Minister of Sustainable
Resource Development Ted Morton. A
spokesman for Alberta Energy said that
although the recommendations are now
being reviewed by several government
departments, action is already being
taken on some issues.
Dan Woynillowicz, a policy analyst
with the Pembina Institute, was heavily
critical of the committee’s work, saying
some members were only interested in
protecting the status quo when many of
those who appeared before the commit-
tee were troubled by the runaway pace
He said it now rests with Premier Ed
Stelmach to tackle that concern head-on.
Industry officials said there was no
need for a moratorium, now that gallop-
ing costs of labor and materials has gen-
erated its own slowdown.They also said
the Alberta government has started deal-
ing with the major infrastructure issues
by earmarking C$400 million for addi-
tional health care, housing and water
systems in the oil sands region.
Committee Chairman Vance
MacNichol said there was a lot of com-
mon ground among the committee
members, even though the gaps could
not be closed on key environmental-
related issues. He urged the government
to pay close attention to the “non-con-
sensus issues” as quickly as possible.