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Petroleum News ebook

  1. 1. page Enbridge sends mixed messages on 7 Alaska natural gas pipeline Vol. 12, No. 31 • 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 S 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 new conditions. 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 July 27. 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 Petroleum. 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 T 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 baseline pricing, 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. 2. 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 GOVERNMENT 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
  3. 3. 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 Doyon Drilling Dreco 1250 UE 14 (SCR/TD) Moving to workover Prudhoe Bay well BP N-12 JUDY PATRICK 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 1/15/08 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 Rowan Companies 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) Not Available XTO Energy 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* Alaska Interior 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 Mackenzie Delta-Onshore AKITA Equtak 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. 4. 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 forecast. 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 19,300 wells. 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 said. 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 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. ● Anchorage Heather Yates OFFICE MGR./CIRC. BOOKKEEPER Canada Shane Lasley CIRCULATION DIRECTOR Steven Merritt PRODUCTION DIRECTOR BOOKKEEPING & CIRCULATION Tim Kikta COPY EDITOR 907.522.9469 Circulation Email Gary Park CONTRIBUTING WRITER (CANADA) Ray Tyson CONTRIBUTING WRITER ADVERTISING Alan Bailey STAFF WRITER 907.770.5592 Advertising Email John Lasley STAFF WRITER Allen Baker CONTRIBUTING WRITER CLASSIFIEDS Rose Ragsdale CONTRIBUTING WRITER 907.644.4444 Sarah Hurst CONTRIBUTING WRITER FAX FOR ALL DEPARTMENTS 907.522.9583 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: P.O. Box 231647 Anchorage, AK 99523-1647) Subscription prices in U.S. — $78.00 for 1 year, $144.00 for 2 years, $209.00 for 3 years. Canada / Mexico — $165.95 for 1 year, $323.95 for 2 years, $465.95 for 3 years. Overseas (sent air mail) — $200.00 for 1 year, $380.00 for 2 years, $545.95 for 3 years. “Periodicals postage paid at Anchorage, AK 99502-9986.” POSTMASTER: Send address changes to Petroleum News, P.O. Box 231647 Anchorage, AK 99523-1647.
  5. 5. 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- T 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 manager. strengthening. 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 T 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. time. “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 have to should 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 and Gas 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. 6. 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 C 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 Mackenzie Delta. 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 —ConocoPhillips 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- tomers. ously. 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 commonplace. 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 MacInnis said. 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. ● GOVERNMENT 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:
  7. 7. 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 E 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 JUDY PATRICK 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. 8. 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 W 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 undeveloped. 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 another. 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- ment. 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. ●
  9. 9. 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 A 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 10,000 acres. 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