page Quebec sets continent’s first carbon
14 tax on hydrocarbon producers
Vol. 12, No. 24 • www.PetroleumNews.com Published weekly by Petroleum Newspapers of Alaska Week of June 17, 2007 • $1.50
● EXPLORATION & PRODUCTION
Senator visits geothermal project
BP making changes
Brock gives Alaska legislators answers about what went wrong at Prudhoe
By KRISTEN NELSON the technical directorate, answered some
Petroleum News questions on terminology used in the docu-
ments, but said he was not in a position to
he reality of the past and the hope of the comment on what went on in the past.
future collided June 7 when Tony The committee’s concern was two-
Brock, head of BP Exploration pronged: was cost cutting in the past
(Alaska)’s new technical directorate, responsible for the corrosion discovered last
talked to the House Resources Committee year which resulted in the shutdown of half
about how BP is moving ahead to fix corro- of Prudhoe Bay for several months and how
sion problems at Prudhoe Bay, both with a BP’s Tony Brock would the replacement oil transit lines BP is
Pictured here is Bernie Karl, owner of Chena Hot Springs Resort, and new oil transit line system and with organi- in the process of building impact state rev-
Sen. Lisa Murkowski, R-Alaska, who recently visited the Interior zational changes.
Alaska resort, which is home to the nation’s first low-temperature
enues under the new Petroleum Profits Tax, which
geothermal renewable electrical project. Diesel generators burned A number of the committee members, as well as passed the Legislature just as the second Prudhoe Bay
about 365,000 gallons of fuel annually until Karl turned to the hot other legislators who sat in, were more interested in leak of the year was being discovered and BP was
springs for power. The system, which powers most of the resort, is some three dozen documents, including internal BP announcing a field shutdown.
dubbed the “Chena Chiller” because it operates under cooler tem-
peratures. Murkowski is co-sponsor of the National Geothermal memos dating back a number of years, which focused Referring to presentation materials which Brock
Initiative Act of 2007, which calls for 20 percent of the nation’s elec- on cost-cutting issues at the Prudhoe Bay field.
trical output to come from geothermal sources by 2030. Brock, who arrived in Alaska in August to head up see CHANGES page 13
Consumers should bear ● NATURAL GAS
Mackenzie gas line costs
The Canadian Gas Association wants consumers, not the
federal government to carry the financial burden of projects
Ownership out of question
such as a natural gas pipeline from the Mackenzie Delta. Cabinet minister suggests Mac gas pipeline project may have to be ‘reinvented’
Association President Mike Cleland said there should be
no federal incentives or subsidies to advance the development By GARY PARK – this is not a business at which the government of
of oil, natural gas or electricity. His remarks were in response For Petroleum News Canada has distinguished itself.”
to recent comments by ExxonMobil Chief Executive Officer Prentice said the government would not subsi-
Rex Tillerson who said that he doubted the Canadian govern- he Canadian government has no intention of dize the Mackenzie Gas Project.
ment could create “enough room in the fiscal structure” to bridging the cost escalation gap between the “If the project is not viable as a private sector
make the Mackenzie Gas Project economic. C$5 billion Mackenzie Gas Project when it investment, then it should not proceed,” he told
Cleland endorsed the Conference Board of Canada’s call was studied in 2000 and the revised budget of the Canadian Gas Association.
for the government to establish a “long-term vision and strat- C$16 billion, but it does want gas from the But, without entering the realm of a public
Canadian North delivered to market, Indian and equity stake, he said the government is open to
see COSTS page 14
Northern Affairs Minister Jim Prentice said. negotiating:
In what represents the most declarative state- • Acceptance of royalties in kind.
Icebreakers head to ment yet by the government of Prime Minister • A royalty regime that is consistent with a proj-
Alaska for Shell Stephen Harper, he stated “categorically that we ect to open exploration and development of
have no interest in owning the pipeline ourselves
OFFSHORE SHIPPING ONLINE said see OWNERSHIP page 15
June 11 that Finstaship had reported the
departure of the icebreaker Fennica from ● NATURAL GAS
Norway for the northern coast of Alaska.
The multi-purpose vessel is expected
to arrive off Prudhoe Bay in late July.
Fennica and Tor Viking II, the
Don’t leave it to FERC
Norwegian icebreaker chartered by Palin on right track, Murkowski gas line contract left important details up to feds
Finland-based Finstaship, will provide
Shell Offshore with Arctic offshore services, OSO reported. By KRISTEN NELSON A partner in the law firm of Brena, Bell
OSO said Tor Viking II left for Alaska from Stavanger, Petroleum News & Clarkson, Brena said he is 100 percent in
Norway on May 15, “visiting first Port Fourchon, Louisiana favor of a gas pipeline, but said Alaska’s oil
on’t leave anything to FERC. Fund and gas resources are transported through
see INSIDER page 14 the state’s efforts on the gas pipeline. pipelines with no competition. These are
Get gas for Alaskans. Get access to monopoly-controlled lines, he said, and
the line right. Get the tariff rates right. economic regulation of these noncompeti-
B R E A K I N G N E W S And have a very good reason if you decide tive pipelines must meet two basic goals:
to give control of the gas pipeline to a few fair access and just and reasonable rates.
4 Two Prudhoe gas owners looking at AGIA options: major producers, because that will have an Long-time tariff liti- Getting access and rates right, he told the
BP, Exxon express some interest in submitting North Slope gas line bids impact on access, an impact on rates and an gator Robin Brena committee, will maximize the state’s
impact on the State of Alaska’s power to said Murkowski’s income from its hydrocarbon resources by
gas line contract left
6 Future is unconventional: Oil sands key to bolstering manage and tax its own resources. a lot of decisions to bringing in more E&P companies to devel-
Those are the lessons attorney Robin FERC. The details op more oil and gas, which in turn will
Alberta's output; bitumen expected to account for 86% by 2016 Brena sees for the gas line after more than were not addressed, deliver more royalty and severance taxes
and that’s where the
20 years of being in the trenches on pipeline money is, he said. into state coffers. Fair access and rates will
7 Final chapter in CIGGS regulation? Following RCA rate litigation, which he shared with a also yield more value-added manufacturing
acceptance of gas settlement, Marathon, Chevron apply for certificate House Resources Committee hearing on June 7 in and jobs in Alaska.
Anchorage. see FERC page 14
2 PETROLEUM NEWS • WEEK OF JUNE 17, 2007
contents Petroleum News A weekly oil & gas newspaper based in Anchorage, Alaska
ON THE COVER GOVERNMENT
BP making changes 5 Government pressed to take more active role
Tony Brock gives Alaska legislators answers 11 Newfoundland ready for test of wills
about what went wrong at Prudhoe
Williams: Hebron partners won't get better offer;
Ownership out of question set to demand equity stake of at least
5 percent in all new offshore projects
Cabinet mininster suggests Mac gas pipeline
project may have to be ‘reinvented’ 14 Quebec imposes continent's first carbon tax
Don’t leave it to FERC LAND & LEASING
Palin on right track, Murkowski gas line contract 5 Potential Alaska state and federal oil and gas lease sales
left important details up to feds
Senator visits geothermal project
4 Two Prudhoe gas owners looking at 'options' under AGIA
Consumers should bear Mac gas line costs
OIL PATCH INSIDER
1 Icebreakers head to Alaska
6 CBM drilling starts at Wainwright
7 Final chapter in CIGGS regulation?
Following the Regulatory Commission of Alaska's
acceptance of the Cook Inlet Gas Gathering System
settlement agreement, Marathon and Chevron
8 Naknek looks to geothermal energy
have applied for a certificate to operate
SW Alaska electric co-op plans seismic survey, deep the pipeline system as a common carrier
drilling to find energy source for Bristol Bay
8 Alaska's gas team works Washington, D.C.
region, Shell lending a hand
15 Mackenzie Gas Project review panel needs more time
9 Unalaska takes the next step
EXPLORATION & PRODUCTION PIPELINES & DOWNSTREAM
6 Future is unconventional 13 Slemons: changing direction a challenge
14 BP applies to expand Prudhoe Bay pads
Oil sands key to bolstering Alberta's output;
bitumen expected to account for 86% by 2016 PUBLIC OPINION
11 Noble scores another deepwater discovery 4 Canadians fret over future energy supplies
PETROLEUM NEWS • WEEK OF JUNE 17, 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 June 14, 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) Milne Point MPS-COHO-01 BP
Sky Top Brewster NE-12 15 (SCR/TD) Kuparuk 1J-158 ConocoPhillips
Dreco 1000 UE 16 (SCR/TD) Workover Prudhoe B-15 BP
Dreco D2000 UEBD 19 (SCR/TD) Alpine CD4-302 ConocoPhillips
OIME 2000 141 (SCR/TD) Kuparuk 1J-120 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
Nabors Alaska Drilling
Trans-ocean rig CDR-1 (CT) Stacked, Prudhoe Bay Available
Dreco 1000 UE 2-ES Prudhoe Bay F-09B BP
Mid-Continental U36A 3-S Prudhoe Bay GPB 11-18 BP
Oilwell 700 E 4-ES (SCR) Prudhoe Bay GPB DS02-29C BP
Dreco 1000 UE 7-ES (SCR/TD) Prudhoe Bay DS 12-12 BP
Dreco 1000 UE 9-ES (SCR/TD) Orion V-222i 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 DS2-12b BP
Superior 700 UE 2 (SCR/CTD) Kuparuk well 1B-15a BP
Ideco 900 3 (SCR/TD) Kuparuk well 2L-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 KBU 34-6 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
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
Cudd Pressure Control
Cudd 340k Jack Unit Workover Ahtna #1-19 Rutter and Wilbanks
Baker Hughes North America rotary rig counts*
Mackenzie Rig Status June 8 Jne 1 Year Ago
Canadian Beaufort Sea US 1,760 1,774 1,661
Canada 226 136 443
Gulf 78 80 92
Seatankers (AKITA Equtak labor contract)
SSDC CANMAR Island Rig #2 SDC Set down at Roland Bay Devon ARL Corp.
Mackenzie Delta-Onshore US/Highest 4530 December 1981
AKITA Equtak US/Lowest 488 April 1999
Dreco 1250 UE 62 (SCR/TD) Rig Racked in Inuvik, NT Schlumberger Canada/Highest 558 January 2000
Canada/Lowest 29 April 1992
Modified National 370 64 (TD) Racked in Inuvik, NT Available *Issued by Baker Hughes since 1944
The Alaska - Mackenzie Rig Report
is sponsored by:
4 PETROLEUM NEWS • WEEK OF JUNE 17, 2007
● N A T U R A L G A S
Two Prudhoe gas
owners looking at
‘options’ under AGIA
Live jazz and 40 wines by the glass
By KAY CASHMAN
the Alaska Gasline
Inducement Act was signed into
law by the governor on June 7, the
three major Prudhoe gas owners
said they would not submit a bid to
build a pipeline from the North Slope
under AGIA as it was written.
“If a party thinks it has a superior
proposal, nothing in AGIA stops it
from putting that proposal in
writing.” –Kirk Morgan, president of
MidAmerican subsidiary Kern River Gas
second question was simply: “We are
evaluating our options,” per Exxon’s
Representatives from BP,
ConocoPhillips and ExxonMobil all tes- upstream media advisor Susan Reeves.
at the Whale’s Tail martini and wine bar. tified before the state Legislature
against the bill, saying AGIA did not
ConocoPhillips would not respond to
either question, although Brian Wenzel,
vice president of Alaska North Slope
provide for a commercially viable proj-
ect; specifically that it was too “pre- gas development for ConocoPhillips
scriptive” — i.e. rigid and did not allow Alaska, did offer criticism of AGIA,
them enough options. saying it had serious flaws.
Not giving up MidAmerican: Free
to make proposals
The position of two of the companies
has since shifted, albeit slightly, about Pipeline giant MidAmerican, howev-
submitting a bid to build the pipeline er, said AGIA was not prescriptive. Kirk
under AGIA. Morgan told House Finance May 3 that
Petroleum News recently asked BP, parties were free to make proposals and
ConocoPhillips and ExxonMobil if they the Federal Energy Regulatory
Live Jazz Thursday, Friday & Saturday 6-10pm. planned to submit bids, together or sin- Commission was free to authorize them
2 hours complimentary self parking in the Captain Cook parking garage. under the legislation: “To put it another
gularly, for the gas line project.
BP’s press officer Steve Rinehart way, if a party thinks it has a superior
responded: “We are very disappointed proposal, nothing in AGIA stops it from
939 W. 5TH AVE. 9072766000 WWW.CAPTAINCOOK.COM putting that proposal in writing,” said
that BP cannot submit a bid that con-
forms to the requirements of AGIA,” Morgan. He is president of
which suggests BP is looking at putting MidAmerican subsidiary Kern River
in a bid, but not necessarily one that Gas Transmission Co., and has said his
conforms to AGIA’s guidelines. company would very likely submit a bid
www.PetroleumNews.com What’s the likelihood of BP submit- under AGIA.
ting a bid? Alaska Gov. Sarah Palin raised
Kay Cashman PUBLISHER & EXECUTIVE EDITOR ADDRESS “We have not given up, and will con- another option on June 6. She said the
P.O. Box 231651 “beauty of AGIA” was that it “lets us
tinue to seek ways to help make this
CHIEF FINANCIAL OFFICER Anchorage, AK 99523-1651
project happen. We are considering what consider building this transportation
Kristen Nelson EDITOR-IN-CHIEF EDITORIAL options may be open to us, but at this infrastructure … ourselves.”
Anchorage telephone point can’t speculate,” Rinehart said. State officials had said they hope to
Susan Crane ADVERTISING DIRECTOR
907.522.9469 Exxon, too, appears to be considering have a request for applications out for
Amy Spittler ASSOCIATE PUBLISHER Editorial Email its options. Its response to the first and bidders on July 2. ●
Heather Yates OFFICE MGR./CIRC. BOOKKEEPER firstname.lastname@example.org
Shane Lasley CIRCULATION DIRECTOR
email@example.com PUBLIC OPINION
Steven Merritt PRODUCTION DIRECTOR
BOOKKEEPING & CIRCULATION
Tim Kikta COPY EDITOR 907.522.9469 Canadians fret over future energy supplies
Gary Park CONTRIBUTING WRITER (CANADA) A new poll shows that 82 percent of all Canadians are concerned – 44 per-
cent of them “very concerned” — about their nation’s future energy supplies.
Ray Tyson CONTRIBUTING WRITER
Conducted by Ipsos-Reid in late May, the poll found the highest levels of
Alan Bailey STAFF WRITER 907.770.5592 concern in Ontario and Atlantic Canada, where 48 percent were very concerned,
Advertising Email dropping to 40 percent in Saskatchewan and Manitoba and 37 percent in
John Lasley STAFF WRITER firstname.lastname@example.org Quebec.
Allen Baker CONTRIBUTING WRITER Half of those polled strongly agreed that the federal, provincial and territori-
al governments should create a common set of rules to standardize how energy
Rose Ragsdale CONTRIBUTING WRITER 907.644.4444
resources are developed, transported and sold.
Sarah Hurst CONTRIBUTING WRITER FAX FOR ALL DEPARTMENTS The support for regulatory harmonization ranged from a high of 56 percent
907.522.9583 in Quebec, which produces no oil or natural gas, to 46 percent in Alberta and 45
Paula Easley DIRECTORY PROFILES/SPOTLIGHTS
percent in British Columbia, two of the leading producing regions.
Petroleum News and its supple-
Judy Patrick Photography CONTRACT PHOTOGRAPHER ment, Petroleum Directory, are Asked if progress could be made toward a cleaner environment by increas-
owned by Petroleum Newspapers ing natural gas supplies, 22 percent strongly agreed and 43 percent somewhat
Mapmakers Alaska CARTOGRAPHY of Alaska LLC. The newspaper is agreed, while 14 percent somewhat disagreed and 4 percent strongly disagreed.
published weekly. Several of the
Forrest Crane CONTRACT PHOTOGRAPHER individuals listed above work for —GARY PARK
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. 24 • Week of June 17, 2007
Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518
(Please mail ALL correspondence to:
P.O. Box 231651, Anchorage, AK 99523-1651)
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POSTMASTER: Send address changes to Petroleum News, P.O. Box 231651 • Anchorage, AK 99523-1651.
PETROLEUM NEWS • WEEK OF JUNE 17, 2007 5
Government pressed to take more active role
The Canadian Energy Pipeline Association is pressing the Alberta government to be
more proactive in developing a policy to manage energy growth.
Failure by the province to become more engaged could mean projects will be
delayed and more oil will be stranded if
pipelines are not built by 2009 when existing
Failure by the province to
pipelines will be operating at capacity, associ-
ation president David MacInnis said. become more engaged could
He said the pressure is on Alberta to “devel- mean projects will be delayed
op an approach that is far more comprehensive and more oil will be stranded if
and addresses the fundamentals and I don’t pipelines are not built by 2009
know if they have the game plan in place.” when existing pipeline will be
MacInnis told the Financial Post that both
operating at capacity,
the administration of Ralph Klein and the cur-
rent premier Ed Stelmach are “behind the eight
association president David
ball” at a time when companies need decisions MacInnis said.
to proceed with C$20 billion worth of
pipelines to carry oil sands production to the
United States by 2014. The pipeline association is calling for an “energy policy devel-
opment framework” that requires a broader view of energy development and involves
government, rather than the traditional hands-off style favored by industry.
But MacInnis said the marketplace is “not a perfectly functioning beast,” but neither
does he believe that government can solve all problems.
He said his own association is not troubled by government involvement because it
is already long-accustomed to the regulatory function played by federal and
LAND & LEASING
Potential Alaska state and federal oil and
gas lease sales
Agency Sale and Area Proposed Date
DNR Beaufort Sea Areawide Oct. 24, 2007
DNR North Slope Areawide Oct. 24, 2007
BLM NE NPR-A 2007
BLM NW NPR-A 2007
MMS Sale 193 Chukchi Sea Feb. 6, 2008
DNR Alaska Peninsula Areawide February 2008
DNR North Slope Foothills Areawide February 2008
DNR Cook Inlet Areawide May 2008
DNR Beaufort Sea Areawide October 2008
DNR North Slope Areawide October 2008
DNR Alaska Peninsula Areawide February 2009
DNR North Slope Foothills Areawide February 2009
DNR Cook Inlet Areawide May 2009
DNR Beaufort Sea Areawide October 2009
DNR North Slope Areawide October 2009
MMS Sale 209 Beaufort Sea 2009
MMS Sale 211 Cook Inlet 2009
DNR Alaska Peninsula Areawide February 2010
DNR North Slope Foothills Areawide February 2010
DNR Cook Inlet Areawide May 2010
DNR Beaufort Sea Areawide October 2010
DNR North Slope Areawide October 2010
MMS Sale 212 Chukchi Sea 2010
MMS Sale 214 North Aleutian basin 2011
MMS Sale 217 Beaufort Sea 2011 The art of
MMS Sale 219 Cook Inlet 2011 transportation Carlile has been solving complex
transportation challenges for more
MMS Sale 221 Chukchi Sea 2012
than 27 years. Like creating a work
Agency key: BLM, U.S. Department of the Interior’s Bureau of Land Management, man- of art, it takes ingenuity, expertise
ages leasing in the National Petroleum Reserve-Alaska; DNR, Alaska Department of and the right equipment to deliver
Natural Resources, Division of Oil and Gas, manages state oil and gas lease sales onshore seamless service from point A to point
and in state waters; MHT, Alaska Mental Health Trust Land Office, manages sales on trust B, every time. No matter what it is or
lands; MMS, U.S. Department of the Interior’s Minerals Management Service, Alaska
where it’s going, Carlile delivers.
region outer continental shelf office, manages sales in federal waters offshore Alaska.
This week’s lease sale chart
PGS Onshore, Inc. www.carlile.biz l 1.800.478.1853
ROAD - RAIL - SEA - AIR ALASKA I UNITED STATES I CANADA
6 PETROLEUM NEWS • WEEK OF JUNE 17, 2007
● E X P L O R A T I O N & P R O D U C T I O N
Future is unconventional
Oil sands key to bolstering Alberta's output; bitumen expected to account for 86% by 2016
By GARY PARK The board makes no mention of the ficult to find.
For Petroleum News impact from a possible hike in Alberta gov- It said 1,956 wells were placed on pro-
ernment’s royalties, or higher costs stem- duction last year, up 4 percent from 2005,
itumen production is on a roll, while ming from federal and provincial environ- and expects that number will remain around
conventional crude and natural gas are mental regulations. 2,000 for the rest of the forecast period,
headed in the other direction – all fur- Crude bitumen output surpassed con- without stopping the decline in production.
ther reinforcement of a trend that start- ventional crude in 2001 and has maintained Alberta exited 2006 with remaining
ed to take shape in the early 1990s in a relentless growth trend ever since, totaling established conventional crude reserves at
Alberta and is gathering pace. 1.25 million barrels per day last year, up 18 1.6 billion barrels, down 2 percent for the
Canada’s largest energy storehouse is, to percent from 2005,while conventional year despite additions of 171 million barrels
all intents, heavily dependent on its uncon- crude slipped 5 percent to 543,700 bpd, put- from drilling and revisions.
ventional oil and gas supplies to meet ting bitumen ahead of Alberta’s traditional The ultimate potential for conventional
demand, the province’s Energy and source by 231 percent. oil is estimated at 19.7 billion barrels, which
Utilities Board (EUB) said in its 2007-2016 Non-upgraded bitumen and synthetic the EUB said could benefit from technolog-
outlook report. crude is expected to climb to 3.1 million ical advances raising the average recovery
The regulator estimates Alberta can hike bpd by 2016, rising from 62 percent of efficiency from its current 26 percent.
its crude oil and equivalent production to overall production in 2006 to 86 percent. Remaining established bitumen reserves
3.5 million barrels per day by 2016, pro- The EUB offers no hope of a reversal in are 173 billion barrels, which have been
vided nothing extreme occurs to derail the downward path for conventional crude, reduced by only 3 percent since commercial
expansion of the oil sands. with large pools becoming increasingly dif- operations started 40 years ago, while the
ultimate potential relying on established
technology is 315 billion barrels.
ALTERNATIVE ENERGY Finance Minister Lyle Oberg said the
growth of oil sands production would be
taken into account during the current review
CBM drilling starts at Wainwright of Alberta’s royalty rates.
Indicating a shift in his thinking from an
Test drilling for coalbed methane near the village of Wainwright on the Chukchi
earlier support for higher royalties, he said
Sea coast is underway. On June 11 the Alaska Oil and Gas Conservation Commission
the EUB statistics show that the province
issued a permit to drill the Wainwright No. 1 well 900 feet from the north line and
will derive higher revenues as production
2,278 feet from the east line of section 24, township 15 north and range 32 west,
Umiat meridian. Drilling operations have begun, USGS co-project chief Art Clark
On the conventional natural gas front,
told Petroleum News on June 13.
record drilling has slowed the decline of
The U.S. Geological Survey, the U.S Bureau of Land Management and Arctic
marketable reserves to 38.11 trillion cubic
Slope Regional Corp. are involved in drilling the well, with USGS as the operator. The
feet (excluding 1.25 tcf of ethane and other
drillers are using a lightweight drilling rig that was barged to Wainwright from the
natural gas liquids) entering 2007, but the
central North Slope last August.
EUB anticipates production will decline
“We are thinking of a total (well) depth somewhere between 1,500 and 2,000 feet,”
over the forecast period by an average 2.5
Clark told Petroleum News in March.
percent a year from last year’s 4.9 tcf – 76
The well forms part of a multi-year project to test the potential for the use of
percent of Canada’s total production.
coalbed natural gas as an energy source in some rural Alaska villages. The project
The trend won’t be affected by the regu-
team drilled a test well at Fort Yukon in 2004 and another test well at Franklin Bluffs
lator’s forecast of 13,000 successful wells
in the central North Slope in 2005.
per year from 2007 to 2016.
At Wainwright coal-bearing strata probably extend down to a depth of between
Alberta ended 2006 with remaining gas
1,500 and 2,000 feet, although coalbed methane production is unlikely in the per-
reserves estimated at 40.5 tcf and an ulti-
mafrost zone that probably extends from the surface down to a depth of about 1,000
mate potential of 223 tcf, excluding coalbed
feet, Clark said. Whenever the well encounters a coal seam, the team will bring a coal
sample to the surface to conduct a gas desorption test, he said. If the test result is favor-
able, the drillers will use the hollow drill rod to pressure test the seam for parameters Record drilling replaced 68%
such as permeability and gas storage capabilities.
Upon completion of the drilling, if there appears to be a viable gas resource, the Reserves from new drilling replaced 68
percent of conventional gas production last
see CBM page 10 year, compared with 63 percent in 2005.
The pace of coalbed methane growth has
slowed after connecting 6,000 wells to
pipelines since 2001, with the well count
forecast to decline from 2,434 in 2006 to
about 1,900 this year because of the scaled-
based activities during low gas prices.
However, the EUB projects a recovery
to 2,400 wells in 2008 and 2009, followed
by 2,500 a year to 2016.
Remaining established coalbed reserves
are placed at 877 BCF, confined mainly to
“dry” coal seams in central Alberta, but
there is no attempt to estimate the ultimate
potential, which the Alberta Geological
Survey (part of the EUB) has placed at 500
The EUB is not worried about Alberta
having sufficient gas supplies to meet the
needs of its core market and believes the
province will “easily meet” its requirements
of 44 percent of total output by 2016.
But it warns that volumes available for
shipment out of the province to the rest of
Canada and the United States will shrink
under an EUB mandate that requires the
province’s needs must be met before any
long-term removal permits are approved.
The outlook projects average WTI crude
prices of US$62 per barrel in 2007, rising to
US$69 in 2016 and average gas prices of
C$7.25 per gigajoule in 2007 and C$8.35 in
PETROLEUM NEWS • WEEK OF JUNE 17, 2007 7
● N A T U R A L G A S
Final chapter in CIGGS regulation?
Following the Regulatory Commission of Alaska's acceptance of the Cook Inlet Gas Gathering System settlement agreement,
Marathon and Chevron have applied for a certificate to operate the pipeline system as a common carrier
By ALAN BAILEY
And, in agreeing that CIGGS
should operate as a common-
t’s been three years since Agrium, carrier pipeline rather than a
owner of the Nikiski fertilizer utility pipeline, RCA also
plant on Alaska’s Kenai Peninsula, withdrew its earlier finding
first filed a complaint with the
Regulatory Commission of Alaska
that Marathon and Unocal
regarding the unregulated operation were acting as public utilities.
of the Cook Inlet Gas Gathering
System, generally known as CIGGS. $0.152 per mcf of gas shipped, with
But a June 7 RCA filing of an appli- a provision for possible rate modifi-
cation by Marathon and Chevron for cation after the first year of regulat-
a certificate of public convenience ed pipeline service. And, because
and necessity for CIGGS surely CIGGS metering and control sys-
marks the final chapter of the saga tems were not designed for common
that started with the Agrium com- carrier operation, the negotiators
plaint. devised a self-policing procedure to
Marathon and Unocal (now part of deal with imbalances between gas
Chevron) built CIGGS in the early volumes delivered into the system
1970s to move gas from their oil and and volumes taken out of the sys-
gas fields on the west side of the tem.
Cook Inlet to industrial facilities at On Nov. 1, 2005, CIGGS owners
Nikiski on the east side of the inlet. opened the system for the third-
At Nikiski CIGGS also connects with party transportation on a temporary,
the gas pipeline infrastructure on the interim basis, pending an RCA deci-
Kenai Peninsula. Marathon and sion on whether to accept the settle-
Chevron still own and operate ment agreement.
Under a grandfathering provision
in the Alaska Right-of-Way Leasing The RCA decision came on Jan. 26,
Act, CIGGS owners had been operat- 2007, when the commission issued an
ing the system as a private, unregulat- order approving the settlement.
ed pipeline. But, in its complaint, “All parties of record have joined
Agrium claimed that the continuing private operation of pipeline. Under that agreement the pipeline owners guar- in the settlement of issues in these dockets,” RCA said.
CIGGS was impeding the development of new gas sup- anteed a minimum capacity of 40 million cubic feet per “Accordingly, we should terminate this proceeding (the
plies for industrial use at Nikiski and that the pipeline day for the common carriage of gas for third-party ship- complaint against the unregulated operation of CIGGS)
operations contravened the Alaska Public Utilities pers, with the owners retaining firm rights to use the unless the public interest requires us to continue it. …
Regulatory Act. RCA decided to investigate and deter- remaining capacity (more than 40 mmcf per day might All current parties have resolved all issues in dispute and
mined that, in operating CIGGS, Marathon and Unocal be available for third party use, depending on how much wish to end their litigation under the terms and condi-
were acting as public utilities. Subsequently, CIGGS gas the owners are shipping at any particular time). tions of the settlement agreement.”
owners Enstar (the major Southcentral Alaska gas utili- Reserving only part of the system’s total capacity of And, in agreeing that CIGGS should operate as a
ty), the Cook Inlet gas producers and the state of Alaska about 120 mmcf per day for third party use would pre- common-carrier pipeline rather than a utility pipeline,
became embroiled in intense discussions regarding the serve the rights of the owners to transport gas from lega- RCA also withdrew its earlier finding that Marathon and
terms under which the gathering system should operate. cy west Cook Inlet oil and gas fields, while also opening Unocal were acting as public utilities.
the pipeline system to regulated common-carrier opera- The June 7 application for the CIGGS certificate of
2005 settlement agreement tion. public convenience and necessity represents the next
The rate base for the use of CIGGS was valued at the essential step in completing the legal process of making
In September 2005, following mediated negotiations,
owner’s original investment cost and the remaining life the Cook Inlet gathering system a regulated pipeline, fol-
the various parties to the dispute filed a settlement agree-
of the system was assumed to be 30 years. The negotia- lowing RCA approval of the settlement agreement.
ment, under which CIGGS would come under regulation
tors agreed on a methodology for calculating rates for Comments on the application must be filed with RCA by
as a common carrier pipeline, rather than as a utility
the use of the system and set an initial tariff rate of June 22. ●
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8 PETROLEUM NEWS • WEEK OF JUNE 17, 2007
● A L T E R N A T I V E E N E R G Y
Alaska’s gas team works Washington, D.C.
Leaders of Alaska’s gas pipeline team were in Washington,
D.C. the week of June 10, visiting with federal officials to facil-
Naknek looks to
itate implementation of the Alaska Gasline Inducement Act, or
AGIA, which Gov. Sarah Palin signed into law June 8.
The governor’s office said June 12 that Department of
Natural Resources Commissioner Tom
Irwin, Department of Revenue SW Alaska electric co-op plans seismic survey, deep drilling to
Commissioner Pat Galvin, and DNR
Deputy Commissioner Marty Rutherford find energy source for Bristol Bay region; Shell lending a hand
plan to meet with the Bush administration, DNR Commissioner
all three members of Alaska’s Tom Irwin By ALAN BAILEY tial for geothermal energy in the Naknek
Congressional delegation, the Federal Petroleum News area for about eight years, Vukich said.
Pipeline Coordinator’s Office, and offi- Initial research focused on the neighbor-
cials from the Federal Energy Regulatory aced with the double whammy of ing Katmai Range, in the Katmai
Commission and other “pertinent federal depressed salmon prices and escalat- National Research and Preserve, where
Revenue ing energy bills, the Southwest there is obvious surface volcanic activity.
Commissioner agencies, including the Department of
Patrick Galvin Energy.” Alaska community of Naknek is But although potential geothermal
The purpose of the meetings is to looking deep underground to alleviate the resources were identified in the Katmai
update key federal officials on AGIA, as passed by the Alaska Bristol Bay region’s economic woes. area, the fact that these resources lay
Legislature during the most recent legislative session. They also Local electric co-op Naknek Electric inside the national park presented a major
will discuss the roles that key federal players will have as the Association plans to drill for a geother- obstacle to development.
AGIA process moves forward, and the interaction of the state Deputy mal energy source that could power elec-
and federal governments in “assuring expeditious progress Commissioner tricity generation for as many as 30 com- Deep drilling advances
Marty Rutherford munities in the region, the NEA’s general
toward certification” of a natural gas pipeline from Alaska’s However, recent technological
North Slope, the governor’s office said. manager Donna Vukich told Petroleum advances in deep geothermal drilling
News on June 12. present new opportunities for geothermal
NEA has been investigating the poten- exploration in the Naknek area, to the
west of the park. Geothermal develop-
ments in Iceland and by the U.S. Navy in
California have demonstrated the effec-
tiveness of deep drilling techniques,
A regional geologic fault called the
Bruin Bay fault passes through the area.
Fracture systems from that fault could
provide conduits for the passage of geot-
hermal water, Vukich said. And thermal
data from oil exploration wells in the area
show that at depths below 8,000 to 9,000
feet temperatures reach levels that could
support what is known as a binary geot-
hermal system, a system in which geot-
hermal fluid vaporizes a lower boiling-
point fluid such as a refrigerant. Vapor
from the lower boiling point fluid then
drives a turbine powered electricity gen-
“At about 12,000 feet some bottom
hole temperatures were up in the 250 to
300 degrees Fahrenheit range (in wells at
the east end of the Alaska Peninsula),
which is adequate for a binary facility,”
Vukich said. It’s all a question of finding
a spot where there is also a source of hot
see NAKNEK page 9